Gold maintained an upside for a second day with the support of a stronger Euro as concerns about Eurozone debt crisis eased after Moody’s affirmed Spain’s rating and German business sentiment improved. Gold Prices were also boosted by some short covering and bargain hunters stepping in to buy following the recent dip in prices. A weaker US Dollar versus the other major world currencies was also supportive for the precious metals Tuesday. The Gold and Silver Market bulls may continue to step in all reasonable dips on expectations of sharper & higher price rallies soon. Gold may continue to remain in a period of consolidation till first week of November.
Investors are waiting for more stimulus measures from central banks around the world, which will benefit Gold as a hedge against Inflation that investors fear, may result from rampant Money printing. The German ZEW economic expectations index rose in September, suggesting less risk for the German economy. Investors will be watching for more economic numbers due later this week, including US housing market data as well as China’s third-quarter GDP figure, due out Thursday. European Officials will meet for a EU Summit in Brussels Thursday to once again discuss the EU debt crisis & there is significant scope for a Euro positive surprise element. The ECB has not bought any bonds after the ESM announcement yet & markets await action. The EUR/USD could reach its September high of $1.3175 by Friday. The Euro currency did get support Tuesday on reports Spanish officials are considering making a formal request to the EU for financial assistance. Weak data would be considered likely to point to stimulative policies that could be supportive for gold. Holdings of gold-backed exchange-traded funds edged down to 74.776 million ounces by Oct. 15 compared with the previous session, but were not far off a record high of 75.03 million ounces hit last week. The outlook for more monetary easing around the world and uncertainty over the global economic outlook has kept investor interest buoyant towards Gold. Gold has also just entered the seasonal period when physical buying tends to pick up due to autumn festivals in India through Chinese New Year celebrations in early 2013. Physical Gold buying interest ahead of the festival season in India can be expected to pick up, thereby stabilizing Gold Prices. The ultra-expansionary monetary policy pursued by central banks suggests that the Gold Price will rise again in the near future, as do the ongoing strikes in the South African Gold mines.
Gold Futures have now stalled around $1,800 area for the third time after previously losing momentum around here in November 2011 and February 2012. Also, given the fact, that Gold went from below $1,540 to close to $1,800 in almost 8 weeks in a straight line based on QE3, one needs to expect some sort of consolidation pullback or a healthy correction on some profits booking. This was likely to have prompted profit-taking by speculators who had built up their largest net-long position in months. The most recent data released by CFTC – Commodity Futures Trading Commission showed that the large non-commercial accounts, often referred to as the funds, stood net long by 244,295 lots as of Oct. 9, which was more than double net length of 118,223 as of Aug. 14. There has been no positive event yet after the QE3 announcement that would result in a break of $1,800. Hence traders who had taken out long positions weeks ago were likely to book profits & markets witnessed some liquidations in response to strong U.S. retail sales data & a firmer US Dollar. Late entrants who had bought at higher prices were obviously going to need to pay a price for the delayed realization of the Gold price run up. Sell stops or pre-placed orders which are triggered when certain chart points are hit, got triggered on Monday. But while some traders have forcefully exited, others who booked gains at close to $1800 are likely to re-enter the market on all retreats, improvising on their original entry points close to $1540 in August.
After the September meeting of the Federal Open Market Committee, many participants seemingly felt there might be “QEternity or QE to Infinity.” But since then, there has been a slew of improved US data & so some market participants could alter their thinking on the longevity of the QE3 & just how much QE the market should expect. They now might be looking for a shorter QE window than at one time, which would take away some of the pressure on the dollar and in turn hurt metals such as gold. It’s too early to conclude that improved US Economic data could mean an early end to QE3. The Fed will need to see a series or a few months worth of data before they would pull the plug on asset-backed purchases, so the near-term outlook for Gold remains largely unchanged.
Spain kept its investment grade credit rating from Moody’s Investors Service, which cited a reduction in the risk of losing market access because of the European Central Bank’s willingness to buy the nation’s debt. Moody’s assigned a negative outlook on the Baa3 sovereign debt, one step above junk, as it concluded the review for a possible further downgrade of Spain’s rating that it had initiated in June. Spain avoided joining euro-region peers Cyprus, Portugal, Ireland and Greece as being rated below investment grade. The willingness of the ECB to purchase Spain’s government bonds in the secondary market “is an important step” for Spain to maintain access to credit markets. The euro rose to a one-month high and the dollar index dropped to its lowest in nearly two weeks, reflecting a pick-up in risk appetite after Moody’s Investors Service affirmed Spain’s investment grade.
Silver, ‘the poor man’s gold’ is currently under-valued and could be poised for a substantial run-up soon. For people who are not able to afford gold anymore, silver becomes a very attractive option as a precious metal & also benefits from its usefulness in industrial applications. Even first time investors with very little investing money can afford to own or trade in Silver even at today’s prices. I am surer of Silver outperforming Gold in the near future. Though physical Gold Demand in Asia has improved markedly from three weeks ago, the Gold Physical Flow index indicates that the physical market buying strength is still well below levels seen last year October. That said, a Gold Price closer to $1,700 might entice much greater buying from the physical market. A renewed run up in Gold prices may trigger larger movements in Silver, as Gold trading or investment would get more expensive as it advances close to its lifetime highs. The weaker US Dollar index limited the selling interest in Copper. Copper bulls still have the overall near-term technical advantage as LME copper may break a resistance at $8,192 per tonne, and rise further towards $8,236.
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