Commodities | Mar 15 2012
Gold continues to come under pressure as investors lose the metal in favour of equities. It is interesting to note that just prior to the sell off that ETP (exchange-traded product), gold holdings have traded to a record high so there still remains a rampant appetite for metal. The holdings for ETPs in gold topped 2407 tons last week, which was the seventh consecutive weekly high with the USD value of the holdings reaching $131 billion dollars. We checked out the nexus of the gold price to the value of the USD and noticed that this break remains intact. The USD has been strong and so to has the value of gold. We suggest that this is because people, regardless of the currency remain convinced that holding some gold is the correct investment strategy regardless of the currency. Gold up until recent sessions has been tracking higher with the value of the USD. Down the track we feel this will apply some pressure on the supply side of the metal. It also presents a good picture that dips will be supported.
In addition, to this we also feel that with all the additional money flowing into the global economy that eventually this has to come out in some inflationary picture. We have started to get a feel of the inflationary aspects in the US given last night's PPI, however this is only on QoQ basis and as of yet this represents early days. Keep focused to CPI due out tonight. We suggest more bullish moves to come will be on the back of smouldering geopolitical tensions and increased demand not meeting supply.
Although we have a tiny positions in both gold and silver we feel that the bears will still have there way with the metal in the short run. Be prepared for some more bearish trading sessions as investors lose gold in favor of equities.
As mentioned last week, we continue to be supportive of both silver and gold however until we can see some positive momentum we have to remain cautious of long positions.
Chart point:
Gold’s failure to remain above the break area has sent it lower. We suspect we are entering into a period of consolidation for the metal, which could see it head towards US1600. We are still tiny long; momentum indicators are right on there lows. The consolidation period is over if US1680 is broken on the topside.
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