Gold recovery picking up steam

The gold price since April.Gold rose to a near two-month high overnight, gaining nearly 2.5 per cent as a drop in the US dollar triggered short-covering and a technical breakout once prices breached key resistance at $US1,350 an ounce.
Nanjing Night Net

After trading lower earlier in the session, gold staged an impressive $US50 rally as the dollar reversed gains after data gave conflicting pictures of the strength of the US economic recovery, muddying views on when the US Federal Reserve will begin trimming its stimulus measures.

Speculators, who have boosted their short position on gold since its mid-April sell-off, opted to buy futures to cover their bearish bets as gold rose above the $US1,350 mark, an area bullion attempted to breach several times in the past two months but failed each time.

“Today’s move was mostly driven by technicals, and that spooked the bearish bets out of the gold market,” said Axel Merk, chief investment officer at Merk Funds.

Spot gold was up 2.3 per cent at $US1,365.60 an ounce, having hit $US1,369.40, its highest level since June 19.

Relatively low volume in the quieter summer months suggests that the metal could easily give up its gains, traders said.

Earlier, the metal fell as much as 1.1 per cent to a low of $US1,318.81 an ounce after data showed US jobless claims fell to a near six-year low last week and the consumer price index (CPI) rose broadly in July. On Wednesday, US data showed the producer price index (PPI) was flat in July.

“I would rather not own gold today. The benign CPI, PPI and Personal Consumption Expenditure (PCE) all suggest that inflation is not picking up,” said Jeffrey Sherman, commodities portfolio manager at DoubleLine.

Changing hands

Stocks of physical gold crossed continents in the first half of 2013 as Westerners dumped their holdings and, on the other side of the world, the resulting fall in price sent consumers flocking to jewellers and bullion dealers.

Indian, Chinese, Thai and other Asian consumers flocked to jewellers and bullion dealers to build their holdings.

The trend, disclosed n the latest data from the World Gold Council, a trade organisation established by the gold mining industry, highlights the different ways in which gold is viewed and owned around the globe. The figures below show global demand for the metal in tonnes, in the months April-June 2013.

Jewellery demand was up 37 per cent  over the same period in 2012, reaching the highest level since 2008. Bar and coin investment was also up by a huge 78 per cent year on year. This purchasing was concentrated in China, India and the Middle East, the WGC said – while selling was largely concentrated in western markets.

In the past decade Western investors piled into gold primarily through the medium of “exchange traded funds” or ETFs. These hugely popular vehicles facilitate quick and cheap trading in gold, because physical stocks of the metal – stored in secure vaults typically in London, New York or Switzerland – are linked to corresponding shares traded on major exchanges like the LSE or NYSE. In 2007 physical gold ETFs represented 800 tonnes of the metal, rising to 3,000 by 2012. Its rapidly rising price, fuelled by the banking, sovereign debt and other crises, drove record inflows.

But these reversed dramatically earlier this year with ETF outflows triggering the sell-off of 150 tonnes in the month of April alone. The WGC has repeatedly said that while ETF demand for physical gold is small relative to other demand, such as that for jewellery, it is highly determinative of price. This is because the supply chain for jewellery is more complex and long, it says.

Gold EFT inflow, Paulson cuts stake

Holdings of SPDR Gold Trust, the world’s largest gold exchange-traded fund, rose 0.2 per cent to 913.23 tonnes on Wednesday, raising hopes that the worst of the outflow from the fund is over.

Investors must also digest news that many top US hedge funds, including longtime bull John Paulson, have reduced, and in some cases completely disposed of, their stakes in SPDR Gold Trust.

Reuters, Telegraph UK

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