Gold Turns Negative Year to Date, But Bull Market is Not Over

By: GoldCore

Gold’s London AM fix this morning was USD 1,563.00, EUR 1,213.79 and GBP 972.62 per ounce. Friday's AM fix was USD 1,580.75, EUR 1,221.69 and GBP 980.98 per ounce.

Gold fell $12.70 to close at $1,581/oz in New York on Friday. Gold has fallen again today and has now erased the gains for the year. Gold edged up in early Asian trading as bargain hunters lifted prices from four month lows, but gains were capped and prices gradually fell and falls continued in European trading.

Cross Currency Table – (Bloomberg)

Support is at $1,550/oz and a close below that level could see gold test strong support at $1,523/oz and $1,533/oz – the lows in December and September 2011 respectively.

Greece looks certain to leave the single currency – something that was denied could ever happen by policy makers, central bankers etc. for many months. A Greek exit from the eurozone would damage confidence in the single currency bloc but not necessarily be ‘fatal’, Irish central bank chief and ECB policymaker Patrick Honohan said over the weekend.

“Things can happen that are not necessarily imagined in the treaties... it is not necessarily fatal but it is not attractive”, Honohan said.

For Greeks who have left their life savings in euros in Greek banks it might prove fatal to their finances as capital controls are suddenly introduced and their savings are forcibly converted to the Greek drachma overnight. It is estimated that the drachma could quickly devalue by between 20% and 50%.

Spanish 10-year bond yields have surged to over 6.29% leading to concerns of contagion which is leading to sell offs in most markets including gold. However, gold's recent correlation with risk assets will again be short term and buyers should again focus on the long term and gold's proven long term diversification, wealth preservation and safe haven qualities.

While gold is now negative year to date in dollar terms, it remains 0.7% higher in euro terms. This shows that recent gold weakness is primarily due to the recent bout of dollar strength.

Gold in USD – Daily (1 Year)

Money managers in gold futures and options have cut their net long positions by 20%, CFTC data showed Friday. The plunge means that bullish gold bets are at their lowest level since December 2008 (92,498 contracts), as speculators aggressively unwound their bullish bets in the precious metal after recent price falls.

Gold in Euros – Daily (1 Year)

Bullish silver bets on a silver rally tumbled 32% to 7,159, the biggest decline since late December. This is bullish from a contrarian perspective.

In the physical market, jewellery makers and speculators took advantage of last week's drop in prices according to Reuters and there are reports of physical buying interest and indeed “tight supplies” in the physical market.

Gold prices dropped 3.7% last week and silver fell 5.1% to $28.89/oz. The smart money, especially in Asia, is again accumulating on the dip.

Demand for jewellery and bullion in India has dipped in recent weeks but should resume on this dip – especially with inflation in India still very high at 7.23%.

Also of interest in India is the fact that investment demand has remained robust and gold ETF holdings in India are soon to reach the $2 billion mark.

Gold in GBP – Daily (1 Year)

Morgan Stanley has said in a report that gold’s bull market isn’t over despite the recent price falls.

Morgan Stanley remains bullish on gold as it says that the ECB will take steps to shore up bank balance sheets, U.S. real interest rates are still negative, investors have held on to most of their exchange traded gold and central banks are still buying gold.

Weak hands are again being shook out of the gold market but it remains prudent to retain an allocation to gold and those who do so will be handsomely rewarded in the coming months and years

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Yours sincerely,
Mark O'Byrne
Exective Director

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

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