Gold poised for losing week as ETFs sell bullion

In the Lead: “Reading Market News as Good or Bad”

Another wild ride for gold unfolded over the past two-and-a-half trading sessions as sellers and bargain hunters played tug-o-war with the market’s price rope and sent the yellow metal over a relatively wide spectrum of quotes. However, the general tilt was biased to the downside and while putative support at near the $1,550 mark was not quite broken, the still-strong dollar capped would-be gains fairly tightly and, thus far, well under resistance at $1,595-$1,600 per ounce.

Spot gold ended at $1,572 last night while silver finished at $27.21 per ounce. The yellow metal is poised to record another weekly loss in value despite this morning’s advance on the back of a “risk-on” trading sentiment. It has already given up last month’s gains and it is down 1.4% on the month-to-date. The SPDR Gold Trust (GLD) has witnessed an outflow of almost ten tonnes of bullion thus far this month.

UBS-sourced market analysis summed up the current paradigm in gold as follows: "Unless physical players and/or opportune investors step in significantly at these levels, we see little standing in the way of further gold weakness in the near-term. In the absence of fresh catalysts, market participants have focused on technicals, and from this perspective, gold looks vulnerable to the downside." Barclays Capital, identified chart resistance in gold at $1,595 an ounce and it suggests selling the metal into rallies, owing to the fact that "risks remain for a retest of the larger range lows at 1525/26 before looking for signs of a base."

Physical offtake remains firmly depressed by the summer doldrums period and by still-too-high a price as regards would-be Indian buyers. Once again, that country’s central bank has been drafting plans to curb the locals’ appetite for the yellow metal. The RBI’s deputy Governor, Anand Sinha, stated that “curbing [gold] import is one aspect; the other aspect is that gold which is already existing in the country, whether you can bring it out to satisfy the demand, by devising financial instruments which can mimic the return on gold. So several proposals are there. There is a committee that is looking into all the aspects. We will take a decision later.”

As mentioned in our last posting, the over-reliance on “Fedspectations” of further monetary stimulus does entail risks for the gold bulls and those risks were heavily underscored once it became clear from the FOMC meeting minutes that, while the Fed is cognizant of the problems surrounding US economic growth and job creation, it is still less than willing to pull an already overused trigger (QE) whose efficacy might be the subject of some serious questioning.

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