July Key Month for Gold as US Futures Positions Steady

By: Adrian_Ash

LONDON's benchmark wholesale gold price rose 0.8% in Asian and London trade Monday, touching $1584 per ounce before easing back as silver also retraced early gains and European stock markets halved their initial rise.

Press reports said Madrid may move to support both the failed Bankia lender and Spain's cash-strapped regional governments with new public debt.

Spanish 10-year bond yields today rose back above 6.4% – a level last seen before the European Central Bank's €1 trillion LTRO loans began in December 2011.

Italy's unelected caretaker government was accused of taking "no significant measure" to tackle untaxed employment.

The caretaker government in Greece – which is on track to back pro-Euro, pro-bailout parties in next month's election re-run, according to weekend polls – may divert €3 billion from propping up Athens' banking sector to help pay public sector salaries in June, the press quote an un-named finance official.

New York markets remained closed after the weekend for Memorial Day

"June will be a key month as investors await the Greek election," reckons Phillip Futures analyst Lynette Tan in Singapore.

"[The gold price] will probably be rangebound between $1530 and $1600 per ounce if there's no major news before the election" on Sunday 17 June.

"People are just waiting for the verdict on Greece," agrees a Hong Kong gold dealer also quoted by Reuters.

Last Friday the gold price "closed down slightly on the week at 1570," says the latest technical analysis from bullion-bank Scotia Mocatta, "negating [the previous] week's bullish hammer in the candlestick charts.

"[That was] gold's 2nd week below the previous long-term uptrend and thus the outlook remains bearish."

Latest data from US regulator the Commodity Futures Trading Commission show hedge funds and other professional speculative, non-industry traders stemming the slide in their "net long" exposure to gold futures and options.

Private individuals playing the gold futures market continued however to grow their bearish bets in the week-ending last Tuesday.

That took the total "net long" position of non-industry gold traders to its smallest level since December 2008 – when the Dollar gold price was trading at $767 per ounce and down more than 60% from the record high of August 2011.

Credit-investors meantime pulled more than $3 billion from low-grade bond funds worldwide last week – the fastest pace since August last year – according to EPFR Global in Cambridge, Massachusetts.

International money market data now show speculators holding their heaviest pro-Dollar bets since May 2008, and a new record "short" position against the Euro for the third week running.

"For much of this year the Euro would not move," says Standard Bank's currency strategist Steve Barrow.

"But now it won’t stop falling and we do not see this changing," he says, restating Standard's new 3 to 6-month targets of $1.15, £0.75 and ¥85.0, and citing "a number of factors that seem to have propped up the Euro in the past [but] may no longer prove such a force."

Barrow points to "severe currency weakness" amongst big foreign-reserve accumulators led by China, Russia and Brazil, plus a sharp slowdown in their pace of diversification away from the US Dollar. The Eurozone's balance of payments has worsened, "suggesting [both] international fear about the crisis, and greater fears internally" as Eurozone investors move capital outside the currency union.

"Finally, we also wonder whether EU directives to banks, to lift their capital ratios by June of this year, could have led to an acceleration of Dollar-asset disposals," says Barrow. "It could have served to support the Euro [but] should wane now that June is nearly upon us."

Meantime in India – the world's #1 gold consumer market until overtaken by China last October – lower demand to buy gold could dent imports by 50% this month, says Prithviraj Kothari, president of the Bombay Bullion Association, despite the government reversing an earlier, highly unpopular move to raise more tax from jewelry sales.

The Rupee gold price has remained near all-time record highs thanks to sharp falls in the Indian currency's forex value.

"We are heading towards seasonally weak demand period," says one Kerala retail manager to Reuters.

"The wedding season is coming to an end and the monsoon is approaching."

India's peak season for buying gold typically coincides with the post-harvest wedding season and festivals culminating with Diwali in November.

By Adrian Ash
BullionVault.com

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Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

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