Pullback in Gold may Continue as US tames Currency Tensions

ONG Focus | Insights | Written by Oil N' Gold | Wed Oct 20 10 07:23 ET

Commodities rebound as the sharp fall yesterday attracts bargain-hunting. WTI crude oil price rose above 80 ahead of the oil inventory report. The market regained confidence on Chinese demand after Zhang Fuqin, the bureau chief of PetroChina's Planning and Engineering Institute, said the country's net crude oil imports may reach 310M metric tons in 2015. Moreover, some investors continued to buy commodities with the view that the rate hike in China would push the RMB higher, hence, positive for commodity demands.

Gold price recovers to 1343 as USD's rally eased. While we do rule out seeing another leg of decline, the long-term outlook for the metal remains bullish. Factors sending gold to record higher in recent weeks have not yet dissipated. Easy monetary policies together with heavy fiscal deficit in the US and others in the advanced world, currency tensions originated from global economic imbalances and sovereign risks in the Eurozone are expected to linger as the financial leaders struggle to revive the economy.

In our opinion, gold's pullback in recent days was driven by US Treasury Secretary Timothy Geithner's attempt to ease currency tensions. Geithner said that the US did not intend to weaken the dollar as no country could 'devalue its way to competitiveness'. He also affirmed the US will work to preserve confidence in a strong currency. While his comments were interpreted as a tactic before the G20 meeting this week and the US mid-term election in November, the dollar rebounded, pushing risky assets lowers.

Another short-term catalyst was China's unexpected rate hike. When PBOC raised the required reserve ratio by +50 bps in January, gold plunged 10% while the euro and equities dropped. While we do not expect the same magnitude of decline in gold this time as the market has partly factored in the possibility of Chinese tightening given strong economic data from the country. Yet, market sentiment will be affected in the near-term.

According to BOE's minutes for the October meeting, policymakers voted 7-1-1 for keeping the Bank Rate unchanged at 0.5% and the asset-purchase program at 200b pound. While Andrew Sentance voted again for a rate hike of +25 bps, Adam Posen favored further easing by expanding the asset-purchase program to 250B pound. The minutes said that 'some of the members felt the likelihood that further monetary stimulus would become necessary in order to meet the inflation target in the medium term had increased in recent months'. Posen's view is shared by the British Chambers of Commerce (BCC). The Chamber said while 'we support the painful fiscal measures that the government is preparing to implement, it is important to reduce the risk of a downturn, and increasing the QE program can play an important role in sustaining demand in the economy'. The move 'is necessary given the expected impact on the economy of the forthcoming VAT increase and spending cuts'.

 

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Pullback in Gold may Continue as US tames Currency Tensions

ONG Focus | Insights | Written by Oil N' Gold | Wed Oct 20 10 07:23 ET

Commodities rebound as the sharp fall yesterday attracts bargain-hunting. WTI crude oil price rose above 80 ahead of the oil inventory report. The market regained confidence on Chinese demand after Zhang Fuqin, the bureau chief of PetroChina's Planning and Engineering Institute, said the country's net crude oil imports may reach 310M metric tons in 2015. Moreover, some investors continued to buy commodities with the view that the rate hike in China would push the RMB higher, hence, positive for commodity demands.

Gold price recovers to 1343 as USD's rally eased. While we do rule out seeing another leg of decline, the long-term outlook for the metal remains bullish. Factors sending gold to record higher in recent weeks have not yet dissipated. Easy monetary policies together with heavy fiscal deficit in the US and others in the advanced world, currency tensions originated from global economic imbalances and sovereign risks in the Eurozone are expected to linger as the financial leaders struggle to revive the economy.

In our opinion, gold's pullback in recent days was driven by US Treasury Secretary Timothy Geithner's attempt to ease currency tensions. Geithner said that the US did not intend to weaken the dollar as no country could 'devalue its way to competitiveness'. He also affirmed the US will work to preserve confidence in a strong currency. While his comments were interpreted as a tactic before the G20 meeting this week and the US mid-term election in November, the dollar rebounded, pushing risky assets lowers.

Another short-term catalyst was China's unexpected rate hike. When PBOC raised the required reserve ratio by +50 bps in January, gold plunged 10% while the euro and equities dropped. While we do not expect the same magnitude of decline in gold this time as the market has partly factored in the possibility of Chinese tightening given strong economic data from the country. Yet, market sentiment will be affected in the near-term.

According to BOE's minutes for the October meeting, policymakers voted 7-1-1 for keeping the Bank Rate unchanged at 0.5% and the asset-purchase program at 200b pound. While Andrew Sentance voted again for a rate hike of +25 bps, Adam Posen favored further easing by expanding the asset-purchase program to 250B pound. The minutes said that 'some of the members felt the likelihood that further monetary stimulus would become necessary in order to meet the inflation target in the medium term had increased in recent months'. Posen's view is shared by the British Chambers of Commerce (BCC). The Chamber said while 'we support the painful fiscal measures that the government is preparing to implement, it is important to reduce the risk of a downturn, and increasing the QE program can play an important role in sustaining demand in the economy'. The move 'is necessary given the expected impact on the economy of the forthcoming VAT increase and spending cuts'.

 

Latest Analysis from this Author

Economic Calendar 11/1/10 (Sunday, 31 October 2010 14:44 ET)Weekly Fundamentals - QE2 Decisions the Key Event ... (Saturday, 30 October 2010 12:11 ET)Gold Weekly Technical Outlook (Friday, 29 October 2010 18:03 ET)Silver Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Crude Oil Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Natural Gas Weekly Technical Outlook (Friday, 29 October 2010 18:01 ET)Sentiment Sours ahead of US GDP (Friday, 29 October 2010 07:07 ET)Gold Soars as ECB Policymakers Warn about Currency... (Friday, 29 October 2010 00:39 ET)Economic Calendar 10/29/10 (Thursday, 28 October 2010 11:43 ET)Gold Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)

View the original article here

8 Reasons Why the Gold Price Will Continue to Rise - And How to Profit From It

Technically - indicators point to a continuation in the inexorable rise of precious metals. Technical indicators are signaling a buy in gold and silver. Gold started the year at $880 and, as I write, is now standing at $960, a rise of 9% and we are just into August - and this should be the quiet season. Admittedly its been volatile at times but the gold price will continue to rise.

Historically - gold is the asset to hold in times of uncertainty and that is what we are experiencing right now . Uncertainty is another reason Why The Gold Price Will Continue To Rise . Recent comments on the economy have been optimistic but these 'green shoot' claims are predominantly fueled by government organizations, banks and generally vested interests. How confident should that make us feel? The Bank of England have, in effect, contradicted the government claims by putting another £50 billion sterling into the economy. This indicates the present level of quantitative easing (QA) is not yet effective.

Emotionally - the smaller investor is more fearful of risk, and responds to the drip-drip effect of hearing and reading day-in and day-out that gold is the asset to rely on to protect their wealth. The markets may appear to be booming again but they're possibly just suffering from a bubble hangover. This could be a secondary bubble ready to pop. The resulting fear is a primary reason Why The Gold Price Will Continue To Rise

Financially - As the dollar wavers, gold continues to creep up. Nothing too dramatic. Just a steady rise. Interest rates continue to remain historically low. The message that inflation could soar, currencies collapse, and gold reemerge as the new global currency is promoting a rising tide of demand for bullion.

Productively with Price Suppression- Many well respected gold pundits have long been convinced the gold price has been suppressed. But, despite that the price still rises. How high would it be already if no suppression scheme existed? How does this effect production of gold? Suppression of price reduces production which ultimately results in a shortage of the metal. Demand exceeds supply - and , the price goes up.

Strategically - despite the market momentum driven by large investment banks and hedge funds, the smaller, longer term investors are losing their appetite for risk and are beginning to see gold ETFS and shares as the better option. Gold shares have been sluggish recently, but once gold passes the US$1000 level again and sticks, investors will gain the confidence to buy into the mining shares again. The ease of electronic trading makes it very convenient to buy bullion or share ETFs - easier than gold and silver bullion, and strategically placed for leverage on the increase in the gold price.

Creatively - creative accounting may well also influence the ultimate gold price rise. There are rumours circulating that the commodity exchanges allow gold futures contracts to be settled in shares of the gold exchange funds. (ETFs) rather than in bullion. If there is ever a question mark concerning the amount of metal held by the ETFs in relation to the gold traded, the price will soar.

Politically - China has indicated its intention to increase gold reserves. Their 2 trillion dollar holding, which they already fear will be devalued, gives them the financial strength to move into stockpiling of real assets, and the acquisition of commodity based strategic assets, including gold as the ultimate US Dollar hedge.

Conclusion - the price of gold is like a river backing up behind the dam wall. When the streams of technical and historical indicators, financial pressure, supply shortage, creative accounting, price suppression and fear are running independently, their individual volume will have limited effect, but when they all converge into one flowing river, the panic will begin to build, and gold will start its stratospheric ascent. The combination of these factors is Why The Gold Price Will Continue To Rise While you still have the opportunity buy now.

p.s. Same arguments apply to silver

Anna P. Best was based in Singapore for many years where she developed her interest in precious metals. Until recently, Gold has not been an area the average investor would consider, but that has changed and suddenly there are so many opportunities out there to profit from gold and silver. Anna enjoys sharing her knowledge with other enthusiasts. She has prepared a complimentary report packed with facts which you can download at the Link to Gold Report.