Gold prices rebounded more than 1 percent on Thursday following a drop of 3 percent in the previous session, as sharply lower prices attracted bargain hunters, but improved risk appetite is likely to cap gains.
Spot gold rose as much as 1.5 percent to $1,842.89 an ounce after its most volatile day in two weeks, with a trading band of more than $80. It stood at $1,840.04 by 0152 GMT.
The most-active U.S. gold futures contract rose 1.6 percent to $1,846.6, before easing to $1,843.90.
"Some investors, speculators and physical buyers have shown a lot of buying interest at current prices, as they are much lower compared to a few days ago," said a dealer at a Tokyo-based bullion house.
Spot gold hit a record high of $1,920.3 on Tuesday.
The faith in gold's long-term bullish trend remained intact as concerns about global growth still run high, although the short term is likely to remain choppy.
"Concerns about economic growth in the United States and euro zone will keep supporting gold prices. Even though we may see liquidation repeatedly along the way, gold will rise toward $2,000," the dealer said.
Gold fell below $1,800 in the previous session, after risk appetite surged and investors abandoned the precious metal for the stock market, as Germany's top court rejected lawsuits aimed at blocking German participation in emergency loan packages, but gave its parliament more say in bailouts.
Adding to the risk appetite, Germany's industrial output jumped unexpectedly in July, offering hopes that Europe's largest economy may avoid recession.
The sharp price drop triggered a flood of buying on Asia's physical market, dealers said.
Investors will be watching a speech by U.S. President Barack Obama on job creation to Congress, after data showed the economy added no new jobs in August.
Holdings of SPDR Gold Trust and iShares Silver Trust remained unchanged.
Comex December gold futures are trading modestly lower in afternoon U.S. trading Tuesday. Prices backed well down from the overnight all-time record high of $1,923.70, on some mild profit-taking pressure. Tuesday was another "risk off" day in the market place as the U.S. stock indexes were lower and U.S. Treasury prices were higher. However, in afternoon trading Tuesday the U.S. stock indexes had moved well off their daily lows, which added a bit of downside pressure to the precious metals markets. December gold last traded down $5.40 at $1,871.60 an ounce. Spot gold last traded down $30.20 an ounce at $1,871.50. December Comex silver last traded down $1.304 at $41.745 an ounce.
Gold prices soared to a new record in early trading Tuesday as the European Union debt crisis continues to fester. There have been ongoing negotiations among EU leaders, with the underlying theme that there is still not uniform agreement on specific near-term actions to be taken. Italy is the focus early this week, with Italian bond yields rising amid talk of worker strikes about to occur there. European stocks markets were under pressure Monday on this situation, as the U.S. markets were closed for a holiday. U.S. markets played catch up Tuesday.
The surprising news overnight that the Swiss National Bank announced it will peg the Swiss franc to the value of the Euro currency did coincide with gold prices backing well off the record high scored in earlier trading Tuesday. The uncertainty of that situation or the big down move in the Swiss franc may have prompted skittishness in the gold market, or produced some margin-related selling in gold.
The U.S. dollar index traded solidly higher Tuesday and prices hit a fresh four-week high overnight. This did add some selling pressure into the gold market as the session wore on. More short covering was featured in the dollar index. While the greenback bears still have the overall near-term technical advantage, bulls have some fresh upside near-term technical momentum to begin to suggest a near-term market low is in place. However, fundamentally, notions of a fresh U.S. monetary stimulus package from the Federal Reserve in the coming weeks or few months will likely limit the upside for the dollar index.
Crude oil prices were also lower most of the session Tuesday, but did rebound in afternoon trading to trade near unchanged. The weaker crude oil prices during the day were a mildly bearish factor for the precious metals.
The U.S. and European stock markets will continue to be the key gauge of worldwide investor risk appetite in the market place. On days of better investor risk appetite (higher stocks) buying interest in gold will likely be limited. On days of shrinking investor risk appetite (lower stocks) gold will likely see more buying interest.
The London P.M. gold fixing was $1,895.00 versus the previous P.M. fixing of $1,895.00.
Technically, December gold futures prices closed nearer the session low Tuesday. Gold market bulls' still have some upside momentum on their side and their next upside technical objective is to produce a close above major psychological resistance at $2,000.00. Bears' next near-term downside price objective is closing prices below solid technical support at $1,817.60. First resistance is seen at $1,900.00 and then at the August high of $1,917.90. First support is seen at Tuesday's low of $1,861.80 and then at $1,850.00. Wyckoff's Market Rating: 8.5.
December silver futures were also pressured by bearish "outside markets" Tuesday that included a stronger U.S. dollar index and lower crude oil futures prices. The silver bulls still have the overall near-term technical advantage. Prices are still in a choppy, two-month-old uptrend on the daily bar chart. Bulls' next upside price objective is producing a close above strong technical resistance at the August high of $44.295 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at $38.81. First resistance is seen at $42.00 and then at $42.50. Next support is seen at Tuesday's low of $41.64 and then at $41.50. Wyckoff's Market Rating: 6.5.
December N.Y. copper closed down 615 points 406.30 cents Tuesday. Prices closed near mid-range today and saw more profit-taking pressure from recent gains. Copper was also pressured by bearish "outside markets" today that included a stronger U.S. dollar index and lower crude oil futures prices. Copper bulls have faded recently. Copper bulls' next upside breakout objective is pushing and closing prices above solid technical resistance at last week's high of 422.30 cents. The next downside price breakout objective for the bears is closing prices below solid technical support at 400.00 cents. First resistance is seen at 410.00 cents and then at Tuesday's high of 413.25 cents. First support is seen at Tuesday's low of 402.20 cents and then at 400.00 cents. Wyckoff's Market Rating: 5.0.
The Gold Price poked its head above $1900 per ounce Monday morning in London – its first breach of that level in nearly a fortnight – before easing back towards lunchtime.
The Silver Price in contrast fell to a low of $42.42 per ounce – 1.9% off Friday’s close – while stocks and major commodities were also down following news of US legal action against banks and yet another election defeat for Germany’s ruling party.
The FTSE was down 2.2% by lunchtime, while Germany’s DAX had lost 3.7%. Shares of European banks hit a 29-month low.
“As European woes reclaim center stage…these factors will support gold in the coming weeks,” reckons Edel Tully, precious metals strategist at UBS.
Service sector growth meantime slowed in Germany, the UK and the Eurozone last month, according to data published this morning.
“Fears of recession [are] back on the table,” says a note from Swiss precious metals group MKS.
On the currency markets the Euro slid below $1.42 before rallying, while the EuroGold Price set a new all-time high of €1344 per ounce – 1% above last month’s previous high.
Over in Germany, Chancellor Merkel’s CDU Party lost its sixth regional election of 2011 on Sunday.
“[Merkel's defeat] simply adds to the sense that saving the Euro is going to be made more difficult by opposition from within Germany,” says Sebastien Galy, senior foreign exchange strategist at Societe Generale in London.
Germany’s highest court is due to issue a verdict Wednesday on whether or not Eurozone bailouts have breached the country’s constitution.
“Countries that need help are getting tired of reforms,” reckons Kimihiko Tomita, foreign exchange manager at State Street.
“Countries that are paying money are getting tired of helping…the outlook of the Eurozone bailout scheme is becoming a bit shaky.”
“There is a growing expectation in the market that we will have to get some policy response from the ECB at some stage,” says Standard Bank’s de Wet.
“Either they will have to cut rates, or they will have to be more accommodating…whatever that will be, it is more likely to be positive for gold than not.”
Over in the US, the Federal Housing Finance Agency – which oversees government-backed mortgage firms Fannie Mae and Freddie Mac – filed 17 lawsuits on Friday against major investment banks.
The FHFA is suing the banks over the alleged mis-selling of $196 billion in residential mortgage back securities.
Here in the UK – where the Sterling Gold Price also hit a new record high at £1178 per ounce – there is a “strong case” for the Bank of England to focus a second round of quantitative easing on lowering banks’ high funding costs, according to a note from Kevin Daly, economist at investment bank Goldman Sachs.
“However, the Bank is unlikely to choose this option, as it believes that credit market intervention of this type should be the responsibility of the fiscal authorities.”
In China meantime the Shanghai Gold Exchange announced plans on Monday to raise its margin requirement on gold forward contracts for the third time in a month. The new higher margin requirements will take effect this Friday, 9 September – the day before the start of the mid-Autumn festival, which sees the SGE closed on Monday 12 September.
“Given that the last margin hike sparked a $100 liquidation in gold, this could be a rare bearish issue in an environment that remains otherwise bullish for gold,” reckons a Gold Bullion analyst here in London.
“It’s not going to have a major effect,” counters Standard Bank commodity strategist Walter de Wet interviewed by news agency Reuters.
“A lot of demand we see out of Asia is physical rather than speculative.”
“Margin and trading limit will revert back to normal after people come back from long holiday on 14 September,” adds a dealer in Hong Kong.
Gold rose above $1,900 an ounce on speculation that economic growth will slow and Europe’s debt woes will worsen, boosting demand for a protection of wealth.
European equities dropped after an election loss for German Chancellor Angela Merkel’s party spurred concern that support for bailing out Europe’s indebted nations may fade. Bullion jumped 3.1 percent on Sept. 2, the most in almost four weeks, as data showed the U.S. jobs market stalled in August, prompting renewed speculation that the country’s economy may be headed for a recession.
“With the implications of Friday’s U.S. payrolls report and intense focus on European sovereign issues this week, gold has two strong reasons to rally,” Edel Tully, a London-based analyst at UBS AG, wrote in a report. “Additional evidence of U.S. economic weakness raises the likelihood that the Federal Reserve will announce further easing this month. As European woes reclaim center-stage and in turn investor nervousness extends, these factors will support gold in the coming weeks.”
Gold for immediate delivery gained $17.82, or 0.9 percent, to $1,900.70 an ounce by 7:06 p.m. in London, after touching $1,903.52. The metal set a record at $1,913.50 on Aug. 23. In New York, gold futures for December delivery were up $26, or 1.4 percent, at $1,902.90 on the Comex, after touching $1,908.40. Floor trading in the U.S. was closed today for the Labor Day holiday.
The metal fell to $1,895 in the afternoon “fixing” in London, used by some mining companies to sell output, from $1,896.50 at this morning’s fixing.
Bull Market
Bullion is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. The metal is up 33 percent this year, outperforming global stocks, commodities and Treasuries. The metal climbed to a record priced in euros and British pounds today.
Merkel’s party yesterday suffered its fifth election loss this year after the chancellor failed to sway voters in her home state with a campaign based on her handling of the euro area’s debt crisis. European investor confidence fell to the lowest level in more than two years in September, a report showed today.
European sovereign-debt risk rose to a record based on closing prices, according to traders of credit-default swaps. World Bank President Robert Zoellick said in Beijing on Sept. 3 that the global economy is entering a “new danger zone” amid Europe’s debt difficulties.
Growth Concerns
“U.S. growth concerns and euro-zone debt concerns continue to overshadow markets,” James Moore, an analyst at TheBullionDesk.com in London, wrote in a report. Gold will be supported by “investors seeking to diversify from the volatile flows in equities.”
Gold exchange-traded-product holdings fell for a third day on Sept. 2, declining 1.7 metric tons to 2,142.4 tons, data compiled by Bloomberg show. Assets reached a record 2,216.8 tons on Aug. 8.
Silver for immediate delivery declined 0.5 percent to $43.0375 an ounce. Platinum rose 0.2 percent to $1,888 an ounce. Gold’s rally pushed its price above platinum today. An ounce of platinum bought 1.19 ounces of gold on average this year, data compiled by Bloomberg show. Palladium fell 1.3 percent to $764.50 an ounce.
