Commodities | Jan 24 2013
Gold has managed to edge out good gains over the last few weeks after profit taking hit the market over the Christmas break. It is interesting to understand the reasons why investors will go back towards the metal given that geopolitical, and sovereign risks concerns seem to have abated for the time being. It is a little hard to explain the recent move with out using old rhetoric, however recent news that Germany’s central bank is looking to repatriate a lot of its holdings (ie from the US and France) has sent a clear message to investors and the market, which may be a reason for the newfound strength.
The Bundesbank currently has 75% of its foreign reserves tied up in gold, close to 3000 tons, which makes it the second largest gold owner among individual countries. It has decided to move half of its holdings back home. Why? The main reason sighted is for security, however by moving some of its gold home it opens the way for more purchases and this is what we think is on the agenda. Central banks around the world are remaining constant buyers of the metal so if you continue to divest assets in favor of gold then this only clears the way for more deposits. We feel we can look forward to more activity by the German central in the gold markets.
“Don’t be surprised if we head towards US 1650. This may be a short but violent move” was where we left the commentary last year.
We can see that good support comes in at US1650 and resistance stands at US1710. If we get a break above US1710 on a daily close then can anticipate that the market will trade higher. This resistance is pretty strong as it represents the down trend line for US1800 high. Momentum indicators are high so we would be cautious about a move higher. Dips remain the preferred option to buy.
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