Gold Weakens Further as USD Rebounds ahead of G-20 Pledge

ONG Focus | Insights | Written by Oil N' Gold | Fri Oct 22 10 07:25 ET

Gold extended weakness to 1315.6 in European session as the dollar rebounded as G-20 finance ministers meet in South Korea. While the communiqué, which likely focuses on the currency market, should not alter the long-term downtrend of the dollar, it may decelerate the decline in the near-term. After all, the dollar index has slumped more than -12% since June. Investors would probably use any possible reason to take profits from their short-USD positions. Crude oil rebounded above 81 but the near-term outlook remained soft. The market held mixed views on China's oil processing data for September.

The recent rally in commodity prices has mainly driven by weakness in USD. Specifically for gold, while the yellow metal has made new record highs in USD-terms since September, price remains range-bounded in EUR-terms. Therefore, the outlook for USD is crucial for commodities' movements.

USD rebounded as finance ministers from the world's 20 largest economies meet to discuss above currency tensions between industrial and emerging countries. While we do not expect the conflict originated from global economic imbalance will be resolved, the statement released by the ministers may ease the tensions temporarily.

Spoke at an economic forum, Kansas Fed President Thomas Hoenig reiterated his stance against further easing. He said that ‘Monetary policy is about an environment that's supposed to be stable…When you try to use it in a way that floods the market with liquidity, you can in fact get very bad outcomes'. The next event risk for the dollar is the November FOMC meeting. The market has priced in announcement of additional easing measures after the meeting.

Currently trading at 81.2, the front-month contract for WTI crude oil has been fluctuating above 80 over the past few days. China implied oil demand rose +6.2% y/y to around 8.68M bpd. While this is the second largest reading after the record high of 8.9M bpd in June, some analysts pointed out the single-digit growth rate signals a slowdown from the first half of the year. The +6.2% growth rate in September indeed results in a +5% growth in 3Q10, compared with +11% in 2Q11 and +18% in 1Q10. In our opinion, the moderated growth was due to high base effect and situation may continue in the fourth quarter. With China's GDP growth slowing in the second quarter, oil demand may also ease. However, the long-term outlook should remain healthy as China's economy is on track for soft-landing.

 

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

Gold Weakens Further as USD Rebounds ahead of G-20 Pledge

ONG Focus | Insights | Written by Oil N' Gold | Fri Oct 22 10 07:25 ET

Gold extended weakness to 1315.6 in European session as the dollar rebounded as G-20 finance ministers meet in South Korea. While the communiqué, which likely focuses on the currency market, should not alter the long-term downtrend of the dollar, it may decelerate the decline in the near-term. After all, the dollar index has slumped more than -12% since June. Investors would probably use any possible reason to take profits from their short-USD positions. Crude oil rebounded above 81 but the near-term outlook remained soft. The market held mixed views on China's oil processing data for September.

The recent rally in commodity prices has mainly driven by weakness in USD. Specifically for gold, while the yellow metal has made new record highs in USD-terms since September, price remains range-bounded in EUR-terms. Therefore, the outlook for USD is crucial for commodities' movements.

USD rebounded as finance ministers from the world's 20 largest economies meet to discuss above currency tensions between industrial and emerging countries. While we do not expect the conflict originated from global economic imbalance will be resolved, the statement released by the ministers may ease the tensions temporarily.

Spoke at an economic forum, Kansas Fed President Thomas Hoenig reiterated his stance against further easing. He said that ‘Monetary policy is about an environment that's supposed to be stable…When you try to use it in a way that floods the market with liquidity, you can in fact get very bad outcomes'. The next event risk for the dollar is the November FOMC meeting. The market has priced in announcement of additional easing measures after the meeting.

Currently trading at 81.2, the front-month contract for WTI crude oil has been fluctuating above 80 over the past few days. China implied oil demand rose +6.2% y/y to around 8.68M bpd. While this is the second largest reading after the record high of 8.9M bpd in June, some analysts pointed out the single-digit growth rate signals a slowdown from the first half of the year. The +6.2% growth rate in September indeed results in a +5% growth in 3Q10, compared with +11% in 2Q11 and +18% in 1Q10. In our opinion, the moderated growth was due to high base effect and situation may continue in the fourth quarter. With China's GDP growth slowing in the second quarter, oil demand may also ease. However, the long-term outlook should remain healthy as China's economy is on track for soft-landing.

 

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

Gold: Further to Run

It’s been an exciting month. Gold rose, surging well above the $1300 level. Silver and gold shares soared even more.

We hear that gold is in a bubble, it can’t rise much further and so on. Many wonder, why it’s even risen so much? For that, you again have to look at history from a global perspective and it’ll provide the answer.

LOOKING BACK…

We’ve often pointed out that gold is money. It has been for thousands of years. Paper money is not really money and there isn’t one paper currency that has survived over time. Gold, on the other hand, has. It can’t be created at will, it’s durable and it’s always maintained its purchasing power.

In 1971 when foreign nations (particularly France) demanded that the U.S. settle its deficits with gold, Nixon, who was worried about the disappearing gold reserves, said “no.” In doing so, he shut the gold window. So the time honored link between the U.S. dollar and gold was broken, the world went off the gold standard and the U.S. dollar became the world’s reserve currency. The U.S. then created a false prosperity via inflation, and ever larger quantities of money and debt. But this was a fantasy that’s now meeting head on with reality.

ABUSED DOLLAR IS THE CULPRIT

Since the U.S. is now going overboard with massive deficit spending and out of control debts, the world is starting to want real money, which is gold. And that’s why the dollar is falling and gold is soaring.

Naturally, there will be corrections along the way. No market goes straight up, or straight down and the hardest part is to stay with it. We’ve been consistently recommending gold since 2002 and yes, there have been ups and downs.

In fact, gold’s exceptional rise has now reached our temporary target level. It’s been a super rise, up 55% since April 2009… or you could say, gold has soared 17% in recent weeks alone! By any standard, the surge is due for a rest, which is likely now beginning, and this could last for a few months.

Gold, however, is still far from the mania, bubble stage. Average investors are just starting to appreciate the rise in gold. They know things aren’t right and they are learning that gold is a safe haven. They see the dollar falling, the economy dragging with debt and the Fed trying to keep it together. The public is concerned, but they’re not yet buying gold. When they do, gold will surge to even far higher levels.

MEGA BULL MARKET

It’s important to keep in mind that great bull markets in gold occur one or two times in a lifetime. The last one ended in 1980. It took 20 years before the next (and current) bull market to begin.

It began at a moment when most thought gold was dead and buried. Central banks couldn’t sell their gold fast enough. The Bank of England sold theirs at the major low in 2001. Meanwhile, gold producers had been hedging their production in order to stay afloat. This despair marked the low.

But now 10 years later, we’ve seen the gold price produce consecutive annual gains. And with gold up more than 20% this year, 2010 will mark 10 full years of gains. This is the longest winning streak since the 1920s!

Times have changed. But it took the financial crisis and the ongoing aftermath to change the way people view gold. Confidence is growing and the change in the central banks’ actions and attitude toward gold was key in giving a green light to investors.

Central banks stopped selling gold and they’ve become net buyers this year for the first time in two decades. They’re expected to buy 15 metric tones of gold this year, which is a major turnaround. Gold is becoming an important reservable asset and again, this bull market has further to run. So use weakness in the weeks ahead as an opportunity to buy at a better price… and then plan to hold on for the long haul.

Mary Anne and Pamela Aden

Editors, The Aden Forecast

Aden Forecast.com

Mary Anne and Pamela Aden are internationally known analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts on gold, gold shares and the other major markets.

View the original article here

<b>Gold</b> at record high; may rise further in bumpy ride

Home Page - Gold & Silver
Agri-Biz & Commodities - Commodity Markets
Gold at record high; may rise further in bumpy ride

Gold and silver prices have been buoyed by weaker dollar and equity market, with investor interest remaining intact

G. Chandrashekhar

Mumbai, Oct 17

In another week of strong gains for commodities, some metals and agricultural products in the international market hit new highs or posted multi-year highs even as the dollar fell precipitously.

While the currency factor did play a role, clearly in many cases market fundamentals are reasserting themselves. So, the upward price move is not without justification. Crude is a glaring example. Oil demand growth is projected to be second highest in the last 30 years. LME week also brought out near-unanimous views about metals market performance.

In related news, iron ore prices continued their upward march, while coal prices too finished the week strongly.

Iron ore stocks in China already higher than at the start of the year are expected to rise in the coming weeks as several ships are headed there. Ocean freight rates are also reportedly moving up.

From a global macroeconomic perspective, growth concerns are far from dissipated. Governments are fighting to ward off recession. The monetary policy continues to be rather easy and there is strong likelihood of further quantitative easing. At the same time, demand side signals are turning positive, and in some cases supply constraints are felt. This is seen as a sure recipe for a further rise in commodity prices.

So long as growth concerns persist, easy money policy continues and equity market confidence remains fragile, investor demand for gold will continue. Similarly, crude is expected to stay around $80 a barrel given strong demand projections and tightening fundamentals.

Agriculture markets continue to be at the mercy of weather and of course bio fuel policies of governments. Corn and cotton prices stay at elevated levels.

Gold: Continuing the upward march to newer highs, gold and silver prices have been buoyed by weaker dollar and equity market, with investor interest remaining intact. Inflows into physically backed ETPs are significant. Prices briefly breached $1,380/oz on Thursday, while silver reached 30-year highs, having risen by a staggering 9.2 per cent over the week.

In London on Friday, all precious metals gave up some value. Gold PM Fix was at $1,367.40 an ounce, down 0.4 per cent from the previous day, while silver AM Fix was at $24.42/oz, down 0.3 per cent.

Taking the cue from overseas markets, gold prices in the domestic market crossed the psychological barrier of Rs 20,000 for 10 grams. At these unprecedented levels, demand compression is seen setting in. Physical demand for fabrication is rapidly drying up despite high season. It is time, the government stepped in to raise the customs duty on gold imports. This will help generate revenue for the exchequer.

Global prices are poised to rise higher to test $1,400/oz, albeit amidst a bumpy ride, as the market speculates about further quantitative easing and continuing environment of low interest rates in advanced economies. Profit-taking and correction enroute is imminent. However, in India, untamed inflation may force a further tightening of liquidity.

Base Metals: Internationally, lead and zinc were the strongest performers over LME week, rising 6.9 per cent and 5.9 per cent respectively, while nickel fell by 1.5 per cent and aluminium by 1.8 per cent.

The positive sentiment regarding current and future conditions of fundamentals that was generated at the annual LME week in London is palpable. The message was loud and clear – ‘strong demand, slower supply', as an expert put it.

Demand conditions are more robust than economic data would suggest, goes the refrain. Restocking demand is yet to emerge with full vigour. The price implication of this is inescapable.

Copper continues to be the focus of attention given its supply constraints and huge deficit forecast for next year. Additionally, tin faces severe mine supply constraints. Both the base metals have solid price support.

At the same time, leading indicators of July and August point to an imminent slowdown in major OECD and emerging economies which needs close watch. Simply put, there is cautious optimism. Easy money policy and prospect of further quantitative easing are supportive.

Crude: Prices remained above $80 a barrel for the entire week. Demand indications from various sources continue to paint a more positive picture than before. Further upward demand revisions to global oil demand were made by IEA, EIA and OPEC's monthly oil market reports.

IEA report pegged 2010 annual demand growth at 2.15 million barrel a day, the strongest growth in 30 years, second only to 2004. OECD demand recovery is seen strong, while Asian demand remains robust.

Under the circumstances, crude may be expected to hover around $80 a barrel with strong potential for an upside surge.

Related Stories:
Gold hits $1,380 an ounce
Precious metals glitter more than stocks on haven buying
Inflation fears may push up gold prices

More Stories on : Gold & Silver | Commodity Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

View the original article here