Gold’s bull market called into question by bank analysts

In the Lead: “Sachs and the Citi”

Spot precious metals trading resumed in New York this morning following yesterday’s MLK holiday-related hiatus. Albeit the U.S. dollar was trading 0.13% lower on the trade-weighted index (at 79.92) there was mild selling pressure on tap in gold and silver. Platinum moved higher and palladium was unchanged. The latest spot indications on the bid-side showed gold trading at $1,690 and silver quoted at $31.83 (down 19 cents).

Platinum was indicated at $1,678 (up $4) and palladium at $717 (up $1) the troy ounce. Rhodium remained static at $1,200 per ounce. Background markets showed crude oil falling by a nickel to $95.52 per barrel and copper moving 1% higher while stock index futures remained steady but cautious ahead of the release of U.S. home sales and regional manufacturing data.

Last week’s CFTC market positioning report (COT) noted that net longs in gold made a bit of a comeback with the addition of 24 tonnes of the metal. Standard Bank (SA) analysts opined that such a favorable nod to gold was in part a side-effect of the market’s strong fascination with platinum. More than 287,000 ounces were added to net-long positions in the noble metal in the wake of a recapture of its price parity (then premium) vis a vis gold and after miner Amplats informed markets of its operational review (in which the closure of two mines was outlined). As regards the mining world, well, not much is new there (unless of course you happened to read the latest from the Globe and Mail about the sad state of affair in that niche).

Standard Bank’s analytical team also noted a hefty increase in interest in palladium with the addition of nearly 143,000 ounces to net-long spec positions. Silver specs appear to be less than convinced that the uptrend in the white metal is sustainable for much longer. This kind of sentiment was reflected by the addition of 117 tonnes to the net-short position in the marketplace — a development that seriously countervailed the addition of 233-plus tonnes to net-long market positions.

Gold prices edged higher in holiday-thinned electronic trading on Monday and spot bids ended just above the $1,690 per ounce level. According to the latest EW market technical analysis, gold prices have stalled near their previous fourth-wave high at $1,695 and while a stab at $1,705 is possible this week, such a move would complete a 61.8% Fibonacci retracement of the decline that commenced at gold’s October 2012 high. Should gold prices breach $1,653 per ounce on the downside, gold could once again begin to exhibit greater bearish potential.

The situation is fairly similar in silver. The white metal has the potential to touch its own 62% retracement target at $32.43 per ounce after having rallied to $32.15 on Friday. However, after five consecutive rising sessions, some profit-taking fatigue may set in. If silver falls through the $30.15 Jan. 11 low, the picture might change in that metal’s trend as well.

Gold bullion prices inched up as speculation arose that the Bank of Japan might be preparing to unleash a fresh round of monetary easing. Japan’s central bank has been aggressively attempting to reflate in recent years but without too much success. Foreign exchange experts we spoke to over the weekend are split on the potential effects of such a move. One camp envisions easing as being gold-friendly (at least to would-be Japanese investors) while another sees the yen’s losses coming to bolster its principal rival currency — the U.S. dollar (and that development is not seen as being potentially gold-friendly, to be sure).

This morning, the BoJ announced a 2% inflation target, open-ended asset purchases, and…that was pretty much “it” for the watershed moves it was going to put into motion. The yen actually eked out a gain in the aftermath of the central bank announcement and the currency and equity markets were otherwise quite disappointed with the news release. The BoJ plans to begin its open-ended asset buying program only one year from now and, thus, there is a feeling among market observers that this was nowhere near as “aggressive” a monetary easing move as was originally inferred.

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