Technicals | Mar 20 2012
By Greg Peel
Last week gold closed below its 200-day moving average which is a death knell as far as technical analysts are concerned, at least in the near term. Gold also traded at a discount to platinum which is seen as another bearish sign. The sudden loss of faith in gold was brought about by the surprise disappearance of talk of QE3 in Fed rhetoric.
QE3 is not dead but at least now in the cupboard, it would seem, in light of recent US economic improvement. Unless the US economy takes a turn for the worse or disinflation becomes an issue, the Fed is unlikely to expand its balance sheet further, Barclays capital notes. This clearly put the frighteners amongst weaker gold positions and those wondering what happened to all this talk of US$2400/oz. Yet the US economy is not so strong as to have impacted on Fed plans to keep the funds rate near zero out to late 2014. Despite protest from within the FOMC, Bernanke seems pretty stubborn on this policy.
At this stage exchange-traded product (ETP) positions in gold show little sign of any sudden change of bullish view. Inflows have slowed to 2 tonnes for the month to date following a very strong February, but holdings remain at a record high of 2445 tonnes, Barclays notes. Comex futures are a little less robust, with non-commercial positions being reduced by 12,400 lots this month and 4,700 lots of short positions being added to reach their highest level since November.
On the fundamental side, the signs are fairly bearish, Barclays suggests. Physical demand has been quiet and while the Shanghai Gold Exchange saw a surge in volumes post the New Year holiday they have not returned to pre-holiday levels. Lower prices encourage Indian gold imports for jewellery purposes but the government has just doubled the import duty to 4%. Importers suggests this could affect as much as a 20% reduction in demand.
On the other hand, while gold production was 3% higher in January from last January in China it was down 27% from December, albeit in line with seasonal trends. South African production has had a weak start to the year, with January down 11.3% on last year.
Barclays has made no reference to recent central bank buying of gold via the bank for International Settlements (Lower Gold Prices Drawing Central Bank Buying)
Technically, the Barclays analysts are “struggling to hold onto a neutral near-term view”. Should gold close below US$1640/oz (last night 1663) the previously bullish analysts would “concede defeat” and follow the trend.
Support lies between US$1622 and 1600 on Barclays analysis and resistance sits at US$1673 to 1716. The analysts are medium term Neutral.
Technical limitations
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