Gold pressured by dollar and oil prices

The action in Tuesday morning’s markets still was largely defined by the gyrations in crude oil and attentive to Libyan developments. Gold prices fell in Asia during the overnight hours as yesterday’s rally to new peaks prompted some profit-taking selling by regional players. Meanwhile, OPEC was thought to be considering ratcheting up its output of black gold not only in an effort to fill the small gap that has been created by the disruption in Libyan flows, but mainly to cool prices which have gotten clearly ahead of themselves on the back of intense speculation lately.

Spot precious metals dealings opened on a weak-to-lower note this morning, as recurring rumors of a deal between Mr. Gaddafi and Libyan rebels continued to pressure oil prices and bolstered the US dollar. Gold opened at $1,432.90 with a gain of $1.80 per ounce, while silver advanced 30 cents to start the session off at the $36.27 mark per ounce. Spot gold went into negative price tick territory within 90 minutes of the open, as a 0.40 gain in the US dollar index (to 76.92) and steadiness (but not gains on the horizon unless Tripoli trips up the market) in crude oil prompted some light selling in a market that RBC metals analysts have labeled as “crowded” and having difficulty “enticing new longs” this morning.

The noble metals however declined some more, with platinum showing a $24 loss out of the starting gate (quoted at $1,795.00 the ounce) and with palladium recording a $12 per ounce decline, easing to the $774.00 level per troy ounce. Profit-taking and some automotive sales-related fears (on the back of surging crude prices) have been manifest in the complex in recent days.

Contrary to recent, highly optimistic quotes seen the media and also contrary to popular perception, the recent rallies in gold prices have been largely built on speculative investment demand by hedge funds, rather than any significant physical offtake by average individual investors. The most recently published physical market flow analysis by Standard Bank (S.A.) corroborates this assertion. SB analysts point out that “while the political turmoil in the MENA region is inflating investment demand for gold, physical demand for the metal has been lacklustre.”

As mentioned in yesterday’s article, the main focus of funds (speculation) has been reflected by the rise of the net long non-commercial gold position in the market over the past 4 weeks. On the other hand, the physical market is still in a seasonally weak time period, and with gold prices having approached $1,440 per ounce, dealers have begun to see physical selling on a consistent basis, and such selling has been outpacing physical buying, even as Mr. Gaddafi continued with his antics.

Standard Bank’s analytical team observes that “the move in the physical market, from providing support in January and early February, to providing resistance, is evident in our Standard Bank Gold Physical Flow Index (GPFI) which has recently declined from close to all-time high levels during the middle of February to negative territory last week. A negative value indicates we observe a physical market that is on net a seller of gold, while a positive value indicates we observe a physical gold market which is on net a buyer.”

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