Gold hit its strongest level in more than two weeks Wednesday, gradually working its way higher in recent days on to a combination of a weaker U.S. dollar, “trend reassertion” and decent physical demand that has emerged from the Asian region, analysts said.
December gold peaked at $1,693.90 an ounce on the Comex division of the New York Mercantile Exchange, its strongest level since Sept. 23. As of 12:40 p.m. EDT, the metal was $19, or 1.1%, higher at $1,680. The contract previously fell from a most-active record high of $1,923.70 on Sept. 6 to a low of $1,535 on Sept. 26 before beginning to right itself.
One of the most widely cited factors for recent gains cone gyratory crusher was the reversal lower in the U.S. dollar. The December dollar index fell to a low so far Wednesday of 77.115 from a high of 80.43 on Oct. 4. The euro has upticked on hopes Europe will still manage debt problems on the continent.
“Gold reacts to a number of factors that are changing all of the time,” said Robin Bhar, senior metals strategist with Credit Agricole CIB. “In the last few days, it’s started to follow again the negative correlation with the dollar, which had been broken for a bit. The weaker dollar-stronger gold correlation has come back into favor for whatever reason now.”
Historically, investors have tended to seek gold as an alternative currency when the dollar weakens, iron ore crusher mining equipment for sale and vice-versa—although both are sometimes bought at the same time as a safe haven in times of crisis. Also, a weaker dollar makes all commodities cheaper in other currencies and thus can help demand.
Meanwhile, Bhar said, a decline in previously “extraordinary” volatility has made investors more comfortable buying gold again. Some may have been reluctant to buy during times of huge daily price swings.
“The final factor has been physical buying,” he said, citing demand in China after that country’s Golden Week holidays last week, as well as the seasonally strong autumn period for Indian demand due to various festivities, including Diwali. “There has been good dip buying
on the lows out of India,” Bhar said. Premiums per ounce on gold have been rising in Asia lately, he added.
Jim Comiskey, senior market strategist with MF Global, and Bhar both pointed out that gold held around its 200-day moving average on the sell-off last month, encouraging longer-term bulls.
“It’s a trend reassertion,” Comiskey said. “All of the factors in place that fed the bullish fire in gold haven’t gone away….There are massive debt issues with toxic debt around the world. You’ve got dollar weakness. We are still in the Indian wedding season.”
Uncertainty with the European debt situation may prompt some buying of gold as “a form of insurance” against any catastrophes, even among those investors who might not normally be “gold bugs,” Bhjar added. Calcium Carbonate Grinding Milling
Sean Lusk, stock-indices specialist with PFGBEST who also monitors gold, linked the metal’s recovery to a combination of the softer dollar and ideas that the Federal Reserve could still launch further monetary stimulus if economic conditions do not improve. “There is a feeling on the Street that QE3 could be coming,” Lusk said, referring to potential for a third round of quantitative easing.
Gold attracted physical buying from Asia after the sudden downdraft to the $1,535 area last month, he said. Then for a period of several days, the market held in the roughly $1,590-$1,610 area, with chart support emerging.
“You hit some support, and we saw some buying come back,” he continued.
Technically, gold has gotten back to around the 38.2% Fibonacci retracement of the decline from the $1,923 area to $1,535, Lusk pointed out. This lies around $1,683. The 50% retracement is around $1,729. “Those are the technical areas I’m watching,” he said.
Yet another supportive influence for gold was U.S. Senate passage of a bill pressuring China over valuation of the yuan, said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. Also, gold gained technical momentum above $1,675, he added.
Bhar said gold’s rally could have some “staying power,” although time will tell whether the metal can go onto new highs. One risk, he said, would be a resumption of sell-offs in other markets such as equities, which might prompt some investors to sell profitable positions in gold to raise money to offset losses elsewhere, as has occurred in past bouts of risk aversion.
“The fall from $1,920 to $1,530 was significant,” Bhar said. “But when you look at it in light of the fact that the rally had carried on for months without any sizeable pullbacks, it’s understandable why we had that pullback.”
Recoveries in any commodities market tends to be slower than sell-offs, Comiskey said.
“When markets sell off, they always do so swiftly and violently,” he said. “In general, when you witness a bull market…in any commodity in a bull run, it tends to look like a little escalator going north. It does what we call stair-step with a series of higher highs and higher lows each day, with a little back and fill. But the rallies generally are of a slower nature than the sell-offs.”
So far, Wednesday is the fifth business day in a row that December gold has posted a higher high and third straight day with a higher low.
Tags: KITCO NEWS Softer Dollar 'Trend Reassertion' Asian Demand Send Gold High
