$1300 Rejects Gold

Gold was stopped cold in its tracks today at the psychological round number resistance level of $1300. It had initially reacted to Ben Bernanke‘s comments, (which most market analysts and players viewed as dovish) by moving smartly higher. During the Q&A session which followed, gold was slammed lower by a wave of very strong selling.

In watching the price action it occurred to me that just as we suspected in our notes from yesterday, nothing new or fresh proceeded from the Chairman. In other words, there was NO FODDER for the bull. Gold had already run higher last Wednesday when Bernanke first reversed himself from his comments in June. At this point in the game however, that is now old news. What gold needed to propel through $1300 was something far more definitive than what Mr. Bernanke gave the markets today.

Think about it this way – the QE will continue as long as the economy needs it. Okay – what is new about that? We have seen this QE going on for some time now and to the minds of most market participants, there is still no real inflation threat looming on the horizon. What is there to make them waver the least in their convictions that inflation is benign? Answer – there isn’t anything… YET.

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Now, if crude oil and unleaded gasoline do not soon set back then that might change. But with a large grain harvest expected, food prices look to be moving lower. As stated previously in another piece I wrote – energy prices may be high and moving higher but food prices are going the other way. Just look at a chart of new crop corn or wheat, or sugar, or cattle, etc.

Both of these need to be moving up simultaneously to impact the consumer (and business to a certain extent although that segment is more impacted by higher fuel and energy costs) and to generate the all-important headlines needed to derail an entrenched, “there is no inflation” psyche.

Technically, two things happened today: Gold failed to extend past an obvious chart resistance level while simultaneously, the HUI FAILED TO CLOSE THAT IMPORTANT CHART GAP I noted in yesterday’s missive.

Both occurrences are viewed as technical failures and will bring in additional selling by the shorter-term oriented trader. What will be key for gold is whether or not it can generate enough buying to keep it above the “former resistance zone now turned support” that can be seen on the chart. Let’s call that the zone between $1270 – $1260. If it can hold here, it will bounce back and set up yet another try to best $1300. If not, down towards $1240 it will go.

I should also note that volume in today’s rejection at the $1300 level is very strong. I view that as a bearish sign that a lot of bulls threw in the towel and gave up on a breakout above $1300. Also, guys who have been playing gold from the short side were emboldened to come back in.

I am unclear just yet as to how much of this jump in volume is associated with rollovers as those are occurring in increasing frequency as we move deeper into July. Most traders will be moving out of the soon-to-be-in-delivery August contract and heading into the more active December. That might have distorted the volume somewhat and thus take what I say here about it with a grain of salt but nonetheless, volume was strong regardless.

Silver? What more can you say about it other than the fact that it too failed to push past tough overhead resistance at $20. The level is now reinforced with significance on the technical price chart. For this metal to start any fireworks whatsoever, that barrier MUST BE BREACHED. If not, it ain’t going nowhere. Poor English grammar but solid trading analysis.

Silver bulls simply must prove their mettle or the bears will grab control of that market and take it down for another test of $18.

One more thing I want to note was that the yield on the Ten Year note closed the day just below the 2.5% mark ( 2.491 to be exact). Interest rates have set back ever since Bernanke made those comments last Wednesday. Here we are now a week later and they have yet to exceed their recent peak. That being said, it might not be too much longer before they try sneaking up again. Everything will depend now on the content of each piece of economic data that gets released.

Source: http://traderdannorcini.blogspot.in/2013/07/1300-rejects-gold.html

Gold Premium Surges In China – Wise ‘Aunties’ And Wealthy Buying

Today’s AM fix was USD 1,405.25, EUR 1,074.68 and GBP 918.64 per ounce.

Yesterday’s AM fix was USD 1,396.75, EUR 1,072.61 and GBP 915.00per ounce.

Gold climbed $27.10 or 1.96% yesterday to $1,412.00/oz and silver also gained 2.57%.

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Gold inched down today after yesterday’s 2% gain. Gold was higher in Australian dollars after the Aussie dollar fell on concerns about the Australian economy.

Monday’s economic data showed U.S. manufacturing activity had slowed to the lowest level in almost 4 years. The still fragile nature of the U.S. economy will support gold.

Poor economic data is confusing the bulls who continue to under estimate risk. The monthly nonfarm payrolls figures out on Friday will give further guidance regarding whether the U.S. is tipping into recession.

Deutsche Bank has recommended buying gold in Japanese yen and Australian dollars.

The bank cites the significant increase in Japan’s balance sheet as likely to cause the yen to weaken further and says the Australian dollar is overvalued.

While gold in yen is down just 3.6% in 2013, in the last 12 months the yen has fallen by 10.1% against gold showing gold’s importance as a hedge against currency devaluations.

As long as the world’s economy remains in tatters then safe havens will be few and far between.

While gold’s safe haven credentials have taken a bit of a battering of late, they will again prove themselves over the long term.

The banking crisis in Cyprus has shown that even bank deposits are not safe and globally there are plans for so called ‘bail ins’ or deposit confiscation for banks that become insolvent.

The premium gold buyers in China are willing to pay to take immediate delivery of gold, as bullion jumped four-fold in April after prices fell sharply.

Store of wealth buyers thronged jewellery stores and bullion brokers in China in order to buy gold jewellery, coins and bars.

Photos of Chinese “aunties,” a term of respect for older women, clearing shelves in goldsmith shops made headlines in government media such as the People’s Daily and millions of Weibo microblog accounts after the 14% plunge in prices in the two days through April 15.

The biggest such drop since 1983 was seen as an unprecedented opportunity by some, which prompted fabricators to replenish inventory by taking delivery on the Shanghai bourse.

The Bloomberg CHART OF THE DAY (above) shows that in the 12 months through April 12, before the rout, gold for immediate delivery in China traded at an average premium of $7.22 an ounce to the prevailing London counterpart, according to Shanghai Gold Exchange data.

The premium has averaged $32 an ounce since mid-April, as physical demand surged, and was at $17.15 at 2:17 p.m. in Shanghai.

“Premium is a function of demand and supply, and right now you could interpret the high premium in Shanghai as a sweetener to entice the overseas gold supply to flow into China,” Qu Mingyu, a trader at Bank of China Ltd. in Shanghai said on May 24.

Even before the mid-April price drop, China’s gold imports jumped to a record in the first quarter, according to official data, and probably rose further through May, Qu said.

China’s output of 403 metric tons in 2012 made it the world’s largest producer for a sixth straight year, according to the China Gold Association. Domestic demand was 776 tons last year, which outpaced supply and spurred imports, according to the World Gold Council.

The store of wealth demand is not just from Chinese ‘aunties.’ There remains an under estimation of the demand coming from wealthy Chinese and high net worth and ultra high net worth individuals (HNWs and UHNWs).

This has not been commented upon or analysed but we have direct experience of wealthy Chinese people looking to store gold in Hong Kong and Switzerland, as have other storage providers.

Given the significant cultural affinity for gold in China, there is likely to be sizeable demand from wealthy Chinese people looking to diversify and protect their new found wealth.

To characterise Chinese demand for physical gold as solely from “aunties” is to simplify Chinese demand. Indeed, besides Chinese people buying gold, Chinese companies and of course the official sector and the People’s Bank of China are also likely accumulating gold.

The significant broad based demand for gold in Asia, and particularly from India and China, continues to be ignored and under estimated by gold bears such as Nouriel Roubini.

Source: http://www.zerohedge.com/contributed/2013-06-04/gold-premium-surges-china-wise-%E2%80%98aunties%E2%80%99-and-wealthy-buying