Stress in the financial markets has not stimulated safe-haven gold buying but has indirectly helped drag gold lower.
Posted: Saturday , 17 Dec 2011
BENONI -
Having fought a stalwart battle above $1,700 and having seen over $1,900 this year, gold has not done as so many analysts have believed it would and risen through $2,000. Instead, here we could be headed down towards $1,500 or to who knows where?
Stress in the financial markets has not stimulated safe-haven gold buying but has instead weakened the euro and indirectly helped drag gold lower. Prices have fallen to a point where investors with longstanding positions are liquidating some of their holdings to secure profits and momentum-driven traders are selling heavily. At the same time stresses continue to be seen in the European interbank lending market as USD funding has become even more expensive as the year closes.
The European Central Bank's USD tenders have done little to alleviate stresses in the USD funding market as was expected. Accordingly, European banks will continue the practice of acquiring USD funding through the foreign exchange forward markets, a process that is contributing to its strength. The aim of last week's European Union summit -that Eurozone governments agree to a strict fiscal pact in return for the E.C.B. buying government bonds-has not materialized.
Yes, the E.C.B. did agree to lend money on easier conditions to European banks, but this is not as free a condition as was thought, as the load remains on politician's shoulders not on the E.C.B.; however, the ability of bankers to take low interest money from the E.C.B. and invest in higher yielding Eurozone government bonds is as we have said before, a form of "back door" Quantitative Easing. In time, this will be very bullish for gold as it was when the U.S. followed the Q.E. road.
GOLD'S FUNDAMENTALS?
Gold has so many incontestable positive fundamentals:
· Limited mine supply growth.
· Central bank demand.
· Only tiny sales from gold Exchange Traded Funds, confirming long-term holders are not selling.
· Jewelry demand recovery.
· A drop in scrap sales.
· Developed world political ineptitude on matters of finance.
Negative factors:
· A pause in emerging market demand [primarily because a weak Rupee has lifted gold price in India to record highs [They are now back to ‘buyable' levels].
· Year-end book squaring and sales to secure profits.
· Reducing positions to lower margin costs as the price falls.
· Protective stop triggering of sales as well as sales triggered by the breakdown of support levels.
Please note the difference - On the bullish side these are solid long-term reasons why the gold price should rise. On the bear side, the reasons are short-term and, we feel, engineered reasons to sell gold.
Why is the price falling after London is closed and before Asia opens?
Is this forcing the price down?...Read more from Source
