Commodities | Sep 12 2006
By Greg Peel
Has gold suddenly lost its appeal once more, or is there more to it than that? These are questions being asked currently by nervous holders of the precious metal. Experienced traders remain stoically unconcerned.
FN Arena has noted for some weeks now that a good 100 tons of gold has hung over the market – that which under the Washington Agreement of European central banks is allowed to be sold before September 24. The question has been whether the lateness of the move to sell has meant procrastination, or whether in fact central banks had decided not to sell.
The prevailing feeling over the last couple of days is that they’re selling, and hence potential buyers have stepped aside until such time as the impediment has been removed. This has frightened less solid long speculators, who have likely dumped their positions, and the move through the significant US$600/oz level would have triggered stop-losses that exacerbate falls in a thin market.
Much has conspired to send the gold price lower. The oil price continues to tumble, as the skies over the Gulf remain calm and negotiations with Iran over its nuclear plans appear to be moving more co-operatively. Despite indications of weakness in the US economy, similar signs from Europe have meant the US dollar has traded higher. General global slowdown fears have had their effect on base metals, particularly copper, and falling base metal prices tend to be a drag on precious metals as well.
As a vacuum appears to have opened up, there are also now fears that Asian jewellery buying will not emerge as expected.
Once again, the true believers are not worried. The central bank overhang has been well documented, and now it’s just a matter of whether they sell the lot. Either way, until September 24 has passed there will a reluctance to step back in. Jewellery buying is still much anticipated, and lower prices will only be more encouraging. If shaky speculators and central banks are removed from the market, the bulls still maintain the only way is up.
Technical analysts have been leaning to the bullish side of late, but would have preferred a week ago if gold had in fact tested US$600/oz again in order to form a chart base that would consolidate belief that the next move was up toward US$700/oz. Well, they’ve got it, so we’ll have to wait and see if the theory still holds.
Oil remains a strong influence in the equation, now having wiped away a good deal of the geopolitical premium it had built in. It would be a brave man who would suggest we have now reached a point of peace in our time. A senior US envoy has said that the UN Security Council is ready a willing to move on sanctions against Iran as soon as appropriate.