Technicians turn gold bulls as SocGen warns of financial bubbles

October 24, 2013 07:03 AM

The price of gold gained $10 per ounce in London trade Thursday morning, gaining 2.2% for the week so far to trade at $1,346 as several analysts said they were "turning bullish."

World stock markets ticked higher, while the euro slipped from two-year highs vs. the dollar after weaker-than-expected PMI economic data, led by a sharp in services sector growth.

China's manufacturing PMI from Markit/HSBC meantime ticked higher to a seven-month high, beating forecasts at 50.9.

A reading of 50 would indicate no change in the level of activity reported by those businesses surveyed.

New data however showed China's biggest banks tripling their write-downs of bad debt on Wednesday.

Today money-market interest rates in Shanghai jumped more than one percentage point to stand above 5%, the highest level since June's sudden double-digit costs.

"Here we go again, and once again no-one is listening," says SocGen strategist Albert Edwards in his Alternative View today.

"Signs of bubbles abound, the most visible one being house prices" in China, the UK and even Germany.

"We all know how this story ends," the FT this week quoted leverage finance manager Matt Toms at ING Investment Management. "The question is trying to figure out exactly when."

"We're in the third year of the greatest leveraged finance markets of all time," the paper also quotes Craig Packer at investment bank Goldman Sachs, who cites the "the efforts by the Fed, and all the central banks around the world, to keep rates at zero."

Chart analysis of the gold price now points to a move higher, said technical strategist MacNeil Curry at Bank of America-Merrill Lynch in New York on Wednesday, changing his formerly bearish view and looking for a break above resistance at $1,433 back to $1,500 and then $1,533 – the level from which gold crashed this spring.

"Overall we are [now] bullish gold," agrees technical analysis from ScotiaBank, "looking for a move to $1,400 while the metal holds above $1300."

"Gold might need to simmer and consolidate before making the next move," cautions the trading desk at Japanese conglomerate Mitsui in Singapore.

"[Even] we acknowledge," says analysis from Swiss investment bank Credit Suisse, repeating its long-term call for lower prices nevertheless, "that the technical picture has become less overtly bearish in the short term."

"The general feeling seems to be bullish," says a note from Marex Spectron's brokers in London, "which is so often the way when precious metals are near their highs."

Overnight in the gold market, "Physical demand remains soft," said an Asian dealer, "though we are seeing good turnover in silver, mainly from Indian counterparts."

Gold holdings at the giant New York-listed SPDR Gold Trust (ticker: GLD) were unchanged last night near four-and-a-half-year lows.

The $7.5 billion iShares Silver Trust, in contrast, added 75 tonnes of silver to the holdings needed to back its exchange-traded shares (ticker: SLV).

The largest one-day addition in more than a month, that put the SLV's total holdings at 10,442 tonnes of silver bullion – down 300 tonnes from May's all-time peak but still equal to more than 40% of last year's silver mining output worldwide.

Silver scrap supplies have "fallen 20-30%" meantime from the record levels of 2011, says Bloomberg, quoting a presentation by refiner Johnson Matthey at yesterday's Silver Industry Conference in Washington.

Silver prices today touched $22.80 per ounce for the third time this week, moving 4.0% from last Friday's close.

About the Author

Adrian Ash runs the research desk at BullionVault.