Friday 18 May 2012

Comex Gold Rallies Sharply on Short Covering, Bargain Hunting, Fresh Safe-Haven Demand

Comex gold futures ended the U.S. day session sharply higher and near the daily high Thursday, posting the largest daily advance in many weeks. Traders and investors stepped in to "buy the dip" in gold prices by doing some heavy short covering and bargain hunting. For the first time in a while some significant safe-haven investment demand also cropped up in gold.  The gold market was also oversold, technically, and due for an upside corrective bounce, which it saw Thursday. June gold last traded up $37.00 at $1,573.60 an ounce. Spot gold was last quoted up $33.60 an ounce at $1,574.50.  July Comex silver last traded up $0.814 at $28.01 an ounce.
The market place was seeing just a bit of a pick-up in investor risk appetite early Thursday morning, following Wednesday afternoon’s release of the minutes of the latest meeting of the Federal Open Market Committee, which hinted that further quantitative easing of U.S. monetary policy is not off the table. Then the Philadelphia Federal Reserve business survey was released and it was weaker than expected. That dented gains in the dollar index and U.S. stock market, rallied the U.S. Treasury prices, and was one impetus for traders to do some short covering and fresh buying in the gold market.
It’s important to note that Thursday’s gains in gold came amid somewhat of an overall “risk-off” day in the general market place, following the Philadelphia Fed survey. The big gains in gold do suggest a portion of the yellow metal’s gains were related to safe-haven investment demand.
Wednesday afternoon’s FOMC minutes that hinted further quantitative easing of U.S. monetary policy is possible if the economy were to continue its lethargic ways is an underlying bullish factor for the raw commodity markets, including the precious metals. Thursday’s weak U.S. economic data further stoked notions “QE3” is not at all off the table. Most traders and investors reckon a QE3 situation would be inflationary down the road, which is commodity-market-bullish. However, many reckoned the monetary stimulus seen by the major central banks of the world during the past 3.5 years would have already produced inflationary price pressures.
For the gold market bulls, they needed to see a day of solid, corrective upside price action. Prices were nearing the key technical level of $1,500.00 an ounce. A move below that major psychological support level would begin to inflict longer-term chart damage and would call into question the 11-year-old price uptrend that remains in place on the longer-term charts. Gold prices around this week’s low also mark a 20% decline from the all-time highs scored last year. Many market watchers determine a bear market to be in place when a market price has backed off by 20%.
The European Union debt and financial crisis is still on the front burner of the market place. The Fitch ratings agency Thursday further downgraded Greece’s debt rating, which was not at all surprising. After Tuesday’s failed efforts by Greek politicians to form a coalition government, fresh Greek elections are now scheduled for mid-June. Concerns regarding Greece leaving the Euro zone are high, as the Greeks’ commitment to financial austerity is highly questionable. Spanish and Italian bond yields are above 6%, which is stressing the EU financial system.
The U.S. dollar index traded near steady Thursday after hitting another fresh four-month high overnight. The greenback has benefited recently on fresh safe-haven demand mainly due to the EU situation. The dollar index bulls have good upside near-term technical momentum. Meantime, crude oil futures prices were slightly lower Thursday after prices Wednesday hit a fresh 6.5-month low of $91.81 a barrel. Crude oil remains in a bearish fundamental and technical posture. If crude oil continues to trend lower and the dollar index continues to trend higher, sustainable near-term price uptrends in gold and silver could be difficult to achieve—unless more solid safe-haven demand for gold surfaces.

Source: http://www.kitco.com/reports/KitcoNews20120517JW_pm.html

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