Gold outlook: Fed Tapering Fear...

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Gold prices are seeing follow-through selling pressure from Thursday’s strong losses and have hit a four-week low in early U.S. trading Friday. Much of the selling in gold and silver is tied to their weakening near-term technical postures and to less risk aversion in the market place this week. December Comex gold was last down $12.60 at $1,318.10 an ounce. Spot gold was last quoted down $2.70 at $1318.75. December Comex silver last traded down $0.244 at $21.895 an ounce.

It was generally quiet in Asian and European markets overnight, except the gold and silver markets. The perceived decreasing odds of U.S. military action against the Syrian regime continue to pressure safe-haven gold. Traders that had made bets the U.S. military would strike Syria and went long gold are at least temporarily licking their wounds and unwinding those positions.

Many traders and investors this week have been looking ahead to next week’s meeting of the U.S. Federal Reserve’s Open Market Committee (FOMC). A majority of the market place believes the U.S. central bank at next week’s meeting will announce it will begin to scale back, or “taper” its monthly bond-buying program. Some reckon the Fed will announce a $10 billion or $15 billion reduction in its $85 billion-a-month bond-buying program. The surprise to the markets could be if the Fed either does nothing at this meeting, or is more aggressive in its initial reduction in bond purchases. For the past several weeks the market place has been fixated on what the U.S. central bank will announce at the conclusion of next week’s FOMC meeting.

The Japanese Nikkei news service reported overnight that President Obama late next week will name Larry Summers as the next chairman of the Federal Reserve. The U.S. dollar index rallied modestly on this report, while gold saw some added selling pressure—on notions Summers as a Fed chairman would be more hawkish on U.S. monetary policy than would present Fed vice chair Janet Yellen. However, the White House has denied the Japanese report. CNBC continues to report the Fed chairman’s job “is Summers’ to lose.”

U.S. economic data due for release Friday includes the producer price index, retail sales, manufacturing and trade inventories, and the University of Michigan consumer sentiment survey.
The London A.M. gold fix is $1,308.25 versus the previous P.M. fixing of $1,328.00.

Technically, December gold futures prices closed nearer the session low Thursday. The gold market bears now have the slight overall near-term technical advantage. A two-month-old uptrend line on the daily bar chart has been negated. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,350.00. Bears' next near-term downside breakout price objective is closing prices below solid technical support at $1,300.00. First resistance is seen at $1,340.00 and then at $1,350.00. First support is seen at the overnight low of $1,304.60 and then at $1,300.00.  


December silver futures prices closed nearer the session low and hit a fresh four-week low Thursday. Silver bears now have the slight near-term technical advantage. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at this week’s high of $24.25 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at $20.65. First resistance is seen at the overnight high of $22.185 and then at $22.50. Next support is seen at the overnight low of $21.42 and then at $21.00. .

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North Korea threatens nuclear strike, U.N. expands sanctions

North Korea threatens nuclear strike

North Korea threatened the United States on Thursday with a preemptive nuclear strike, raising the level of rhetoric just before the U.N. Security Council approved new sanctions against the reclusive country.

The White House said North Korea's threats would only lead to Pyongyang's further international isolation and declared that the United States was "fully capable" of defending against any North Korean missile attack.

China's U.N. Ambassador Li Baodong said Beijing wanted to see "full implementation" of the new U.N. Security Council resolution that tightens financial restrictions on Pyongyang and cracks down on its attempts to ship and receive banned cargo.

North Korea has accused the United States of using military drills in South Korea as a launch pad for a nuclear war and has scrapped the armistice with Washington that ended hostilities in the 1950-53 Korean War.

A North Korean general said on Tuesday that Pyongyang was scrapping the armistice. But the two sides remain technically at war as the civil war did not end with a treaty.

North Korea threatens the United States and its "puppet," South Korea, on an almost daily basis.
"Since the United States is about to ignite a nuclear war, we will be exercising our right to preemptive nuclear attack against the headquarters of the aggressor in order to protect our supreme interest," the North's foreign ministry spokesman said in a statement carried by the official KCNA news agency.
North Korea conducted a third nuclear test on February 12, in defiance of U.N. resolutions, and declared it had achieved progress in securing a functioning atomic arsenal. It is widely believed that the North does not have the capacity for a nuclear strike against the mainland of the United States.
With tensions high on the Korean peninsula, the U.N. Security Council voted unanimously to expand its sanctions on North Korea. The new sanctions were agreed after three weeks of negotiations between the United States and China, which has a history of resisting tough measures against its ally and neighbor.

The resolution specifies some luxury items North Korea's elite is not allowed to import, such as yachts, racing cars, luxury automobiles and certain types of jewelry. This is intended to close a loophole that had allowed countries to decide for themselves what constitutes a luxury good.
"These sanctions will bite and bite hard," said U.S. Ambassador to the United Nations Susan Rice.
The export of luxury goods to North Korea has been prohibited since 2006, though diplomats and analysts said the enforcement of U.N. sanctions has been uneven.

U.N. Secretary-General Ban Ki-moon, a former South Korean foreign minister, welcomed the council's move, saying in a statement that the resolution "sent an unequivocal message to (North Korea) that the international community will not tolerate its pursuit of nuclear weapons."
The success of the new measures, council diplomats said, will depend to a large extent on the willingness of China to enforce them more strictly than it has in the past.

Pyongyang was hit with U.N. sanctions in retaliation for its 2006 and 2009 nuclear tests. Those measures were subsequently tightened and expanded after several rocket launches by the North.
In addition to the luxury goods ban, there is an arms embargo on North Korea, and it is forbidden from trading in nuclear and missile technology.

George Lopez, a professor at the University of Notre Dame in Indiana and a former member of the U.N. panel that monitors North Korea sanctions compliance, said the new measures should have a real impact on North Korea's movement of money and constrain access to equipment for its nuclear and missile programs.

"Now, we may yet see another launch or a bomb test, but over the medium term this resolution will degrade DPRK capabilities to grow its program," Lopez said, using the acronym for the Democratic People's Republic of Korea.

THREATS AND WAR GAMES

North Korea's threats were the latest in an escalating war of words by both sides across the armed Korean border this week.
The North's unnamed foreign ministry spokesman said it would be entitled to take military action as of March 11 when U.S.-South Korea military drills move into a full-scale phase.
"North Korea will achieve nothing by continued threats and provocations. These will only further isolate the country and its people and undermine international efforts to promote peace and stability in northeast Asia," Rice told reporters.

President Barack Obama's administration said it had reassured South Korea and Japan "at the highest levels" of its commitment to deterrence, through the U.S. nuclear umbrella and missile defense, in the face of the new threats.

Glyn Davies, the State Department's point man for North Korea, also said in testimony prepared for a Senate hearing that Washington will not accept North Korea as a nuclear state.
Russia's U.N. Ambassador Vitaly Churkin called for restraint and an end to the threats. "Let's keep our minds cool and keep focused on the need for the only possible rational course of action, and that is returning to six-party talks," he said.

North Korea, which held a mass military rally in Pyongyang on Thursday in support of its recent threats, has protested against the U.N. censures of its rocket launches. It says they are part of a peaceful space program and that the criticism is an exercise of double standards by the United States.
The North's shrill rhetoric, however, rarely goes beyond just that. Its last armed aggression against the South in 2010 came unannounced, bombing a South Korean island and killing two civilians. It was also accused of sinking a South Korean navy ship earlier in the year, killing 46 sailors.
North Korea was conducting a series of military drills and getting ready for state-wide war practice of an unusual scale, South Korea's defense ministry said earlier.

South Korea and the United States, which are conducting annual military drills until the end of April, are watching the North's activities for signs that they might turn from an exercise to an actual attack, said South Korea's defense ministry spokesman Kim Min-seok.

Kim declined to confirm news reports that the North has imposed no-fly zones off its coasts in a possible move to fire missiles, but he said any flight ban limited to near the coast would not be for weapons with meaningful ranges.

South Korea's military said in a rare warning on Wednesday that it would strike back at the North and target its leadership if Pyongyang launched an attack.

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Gold tilts up, aims to extend rise to a third day

Gold futures tilted higher Wednesday,

 aiming to extend their rise to a third straight session, as investors weighed the metal’s safe-haven appeal against a backdrop of better-than-expected U.S. private-sector employment data and a drop in factory orders.

The market also garnered support ahead of Thursday’s decisions on monetary policy by the European Central Bank and Bank of England and Friday’s official U.S. nonfarm payrolls report.

Gold for delivery in April GCJ3 +0.23% traded at $1.578.60 an ounce on the Comex division of the New York Mercantile Exchange, up $3.70, or 0.2%. It stuck to a range between $1,566.40 and $1,584.30.

Prices tallied a modest gain of $2.60 over the past two trading sessions.

May silver SIK3 +0.98%  also rose 29 cents, or 1%, to $28.90 an ounce.

The massive quantitative-easing policies of the U.S. “look to be spreading around the world (think England, Japan), which should typically propel gold prices,” said Jason Rotman, president of Lido Isle Advisors in Newport Beach, Calif.

“However, with strong U.S. economic data recently hitting the wires, including [Wednesday’s] ADP jobs numbers, we also see a move away from safety (gold, bonds) and into risk-based assets such as equities,” he said. 

The Dow Jones Industrial Average DJIA +0.18%  closed at an all-time high on Tuesday. See: U.S. stock rally lifts Dow to record high.

Data from Automatic Data Processing Inc. Wednesday showed that U.S. private-sector jobs rose by 198,000 in February, more than economists expected. See: Private-sector jobs growth beats expectations.

 

Factory orders in January, meanwhile, fell 2%, though economists surveyed by MarketWatch expected orders to decline by 2.2%. See: U.S. factory orders drop 2.0% in January.

The Federal Reserve’s Beige Book, which was set for release at 2 p.m. Eastern — after the Comex session ends — is expected to show the economy limped along in early 2013. 

But for now, the gold market is looking forward to the Bank of England meeting, “and perhaps anticipating more stimulus, which would typically be bullish for gold prices,” said Rotman. 

Stimulus is typically tied to inflation and gold is seen as a hedge against inflation. 

On the downside for gold prices Wednesday, the dollar edged higher against many of its rivals.  The ICE dollar index DXY +0.49% , which measures the greenback against a basket of six currencies, rose to 82.390 from 82.078 in late North American trading on Tuesday. Dollar strength weighs on dollar-denominated commodities such as gold since it makes them more expensive for holders of other currencies.

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Stocks(Trade Levels)

27/02/2013

 

JPMorgan Chase& Co.  (Public, NYSE:JPM) 

Sell @48.50; Stop above@50, Target @46.50

Ford Motor Company  (Public, NYSE:F) 

Buy@ Market Price. Stop below@11.95, Target@13.20

First Solar, Inc.  (Public, NASDAQ:FSLR)

Buy@ 24.50. Stop below@22.25, Target@30.60

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Italy could reignite euro crisis.

Can the Italians be serious? That is likely to be the reaction of financial markets and the country’s euro zone partners as they ponder a disastrous election result, which could reignite the euro crisis. More than half of those who voted chose one of two comedians: Beppe Grillo, who really is a stand-up comic; and Silvio Berlusconi, who drove Italy to the edge of the abyss when he was last prime minister in 2011. Both are anti-euro populists.
This comedy could easily end in tragedy. The inconclusive result has echoes of last year’s first Greek election – except that Italy is bigger and more strategic. The country faces political paralysis, while its economy is shrinking and its debt is rising. The European Commission forecast last week that GDP would fall a further 1 percent this year after last’s year 2.2 percent drop. Debt, meanwhile, would reach 128 percent of GDP by the end of this year.
The euro crisis went into remission after the European Central Bank’s president Mario Draghi promised last summer to do “whatever it takes” to preserve the single currency. But, if Italy proves ungovernable during this critical time, even the ECB’s safety net may not work.
Investors are already getting nervous. Italian 10-year bond yields jumped 0.4 percentage points to 4.7 percent on Tuesday morning. Spanish yields also rose 0.2 percentage points to 5.3 percent, in the first sign of contagion. These are, though, admittedly still a far cry from the 7 percent-plus yields when the crisis was raging last July.
The risk is not that Berlusconi or Grillo will be prime minister. It is rather than nobody will be able to form a stable government. The electorate split into three roughly equal groups: Berlusconi’s centre-right group, Grillo’s uncategorisable 5-Star Movement and the centre-left coalition led by Pier Luigi Bersani. The centrist coalition led by Mario Monti, the technocratic who saved Italy from Berlusconi’s antics but whose austerity policies were deeply unpopular, came a poor fourth.
Italy’s convoluted electoral system gives the coalition with the largest number of votes an automatic majority in the lower house of parliament. This means Bersani will get the first chance to be prime minister, even though his coalition beat Berlusconi’s only by a whisker.
However, a different electoral system in the Senate, which has equal power as the lower house, means nobody will have a majority there. Bersani will not even be able to form a government in alliance with Monti – a scenario which pre-election polls had suggested was a likely outcome. At least Greece has only one house of parliament.
So what happens next? One idea is that Bersani could team up with Berlusconi to form a new grand coalition. This, though, seems unlikely given how they stand for completely opposite policies – unless Italy is dragged right to the brink. It’s also hard to see who would run such a government. If Monti hadn’t made the terrible mistake of running in the election, he would have been the natural choice. But his credibility has been shot to bits.
Grillo has said he won’t form a coalition with anybody, so a formal alliance with him isn’t an option. But Bersani could conceivably try to govern on his own, getting support on a case-by-case basis from the comedian. That, though, would be a recipe for extremely weak government.
Another option is a fresh election, as there was in Greece last year. Indeed, it’s hard to see how a new ballot can be avoided. The snag is that it isn’t obvious this would resolve the deadlock given that there are three roughly equal forces which don’t want to work together.
Some pundits think a solution could be to change the electoral system. That could conceivably clear away the old political caste, preparing the way for new parties and new leaders such as Matteo Renzi, the young centrist mayor of Florence. But Italy’s parliament has been debating new voting rules for years without coming to a conclusion and it may find it tough to reach consensus now.
Meanwhile, investors will give their verdict. A key question is whether Italy can still rely on the ECB’s support – its promise to buy potentially unlimited quantities of sovereign bonds. While this a very powerful drug, it contains important fine print: the ECB will only engage in so-called “outright monetary transactions” if the country concerned agrees to a reform programme with its euro zone partners.
It is hard to see Italy being able to sign such a programme without a stable government – which means the safety net has holes in it. If investors start thinking this way, bond yields could spiral upwards and capital flight could resume. The prospect of crisis could become a self-fulfilling prophecy.
Contagion could return with a vengeance too. Other countries may have more stable governments than Italy. But Spain, Greece and even France share its problems of a shrinking economy, rising debt and increasing popular anger against austerity. The longer recession bites, the greater the appeal of populist policies. Investors may worry anew that the race between populism and the return of growth will be lost across the euro zone.
A market fright could, of course, restore Italian voters to their senses when and if there’s a second election. That is what happened in Greece last year. But the next few months could be extremely jumpy and a happy outcome is not sure.

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U.K. Loses Top Aaa Rating From Moody’s as Growth Weakens

Britain lost its top credit rating by Moody’s Investors Service, which cited the continuing weakness in the nation’s growth outlook and the challenges that presents to the government’s fiscal consolidation program.
The rating on the U.K. was lowered one level to Aa1 from Aaa and the outlook on the nation’s debt changed to stable, Moody’s said in a statement today. With the U.K.’s high and rising debt burden, a deterioration in the government’s balance sheet is unlikely to be reversed before 2016, Moody’s said in the statement.
The cut will increase political pressure on Chancellor of the Exchequer George Osborne, with the opposition Labour Party calling on him to scale back his fiscal squeeze as the economic recovery struggles to gain traction. Still, investors often ignore such actions, evidenced by the drop in French 10-year bond yields following a downgrade last year and a rally in Treasuries after the U.S. lost its top rating at Standard & Poor’s in 2011.
“Tonight we have a stark reminder of the debt problems facing our country -- and the clearest possible warning to anyone who thinks we can run away from dealing with those problems,” Osborne said in a statement in London. “Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it.”

Pound Slumps

The pound slumped after the downgrade in the last half hour of trading in New York, dropping 0.6 percent to $1.5163. Sterling has depreciated 5.6 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.
“They have drawn a line in the sand that if we don’t put forth a formidable plan we don’t deserve a triple-A rating,” said Joseph Balestrino, senior fixed-income strategist for Pittsburgh-based Federated Investors Inc., which oversees $51.4 billion of assets.
Britain’s debt as a percentage of gross domestic product will climb to 98 percent next year from 90 percent last year and 95.4 percent in 2013, the European Commission said in its winter forecast today.
Osborne’s austerity policies will squeeze the budget deficit to 6 percent next year from 10.2 percent in 2010, when his Conservatives took over in an unprecendented coalition with the Liberal Democrats, according to the predictions by the commission.

‘Shock Absorption’

“Because of the combination of weak growth outlook, substantial fiscal challenges, high and rising debt burden, and the deterioration in shock absorption capacity, we see that the credit worthiness of the U.K. has deteriorated to a level that is more commensurate with Aa1 rating,” Sarah Carlson, a senior credit officer at Moody’s in London, said in a telephone interview.
Osborne said in his autumn statement on Dec. 5 that he’s no longer likely to meet his target to begin cutting the burden of government debt in 2015-16 after his fiscal watchdog cut its growth forecasts. Standard & Poor’s put the U.K.’s rating on a negative outlook a week later.

Fitch Ratings

Fitch Ratings said on the day of the budget that missing the debt target “weakens the credibility of the U.K.’s fiscal framework.” It will conduct a further formal review of the rating in 2013 incorporating the budget, due March 20. Fitch lowered its outlook on the U.K. to negative from outlook in March 2012. Moody’s lowered its outlook the previous month.
Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook last year, according to data compiled by Bloomberg published in December. Investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by S&P. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974.
“Ultimately it’s a fairly minor action and shouldn’t result in a massive bond market response,” said Eric Lascelles, chief economist for RBC Asset Management in Toronto. “This is an era where developed countries are being downgraded on a regular basis..

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Fed, uneasy over ‘QE,’ plans bond-buy debate One idea: Hold balance sheet even during exit

Get ready for a rock’ em, sock ‘em debate over quantitative easing in March.

Minutes of the Federal Reserve’s January meeting released Wednesday reveal that many Fed officials are worried about the costs and risks arising from the $85 billion–per–month asset-purchase program. And they all seem to have their own ideas on how to proceed. 

Several Fed officials said the central bank should be prepared to vary the pace of the asset-purchase plan depending on the outlook or how the program was working. One wanted to vary it on a meeting-by-meeting basis. 

One new idea backed by a “number” of Fed officials would have the central bank promising markets that it will not sell its massive holdings of Treasurys and mortgage-backed securities as quickly as the market now expects. Read selected text of Fed meeting minutes.

This could be a substitute for asset purchases, they argued. 

But that was only one of a flurry of proposals.

“The minutes ... show a committee that is far less unified than at any other time in the past few years,” said Millan Mulraine, senior economist at TD Securities.

The Fed said a review of the program had been set for March. Fed Chairman Ben Bernanke will hold a press conference at the end of the two-day meeting on March 20. 

Without the Fed’s unconventional program, the 10-year Treasury would yield 3% or more, according to research published by Goldman Sachs. See related blog post on The Tell.

 

A number of Fed officials said the central bank may have to taper off or end the purchases before reaching the stated goal of a substantial improvement in the labor-market outlook. On the other hand, several Fed officials warned that ending the asset purchases too soon would damage the economy. 

They stressed that it was important to communicate that the Fed would hold to an ultra-easy policy stance as long as warranted by the weak economy. 

One Fed official said that the central bank could adjust the size of the asset-purchase program every meeting.

Some officials said they were worried about the effects of more asset purchases on “the functioning of particular financial markets.” 

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Gold: Time to get worried? Or greedy?

With gold falling sharply recently — and the gold ETF GLD -0.02% held in so many individual investors' portfolios these days — let's explore some smart work on the yellow metal.

Mark Dow continues to see gold declining: "all the 'tail-risk reasons' for owning gold and silver are melting away"

• Kid Dynamite encourages some perspective on the gold price decline: "the 6 month chart looks ugly, the 1 year chart looks almost as ugly, the 2 year chart looks the best of all" 

• Gwynn Guilford at Quartz explores how Chinese gold demand could impact prices going forward. 

• Cam Hui compares the Amex Gold Bugs Index (HUI) of miners against the metal price and finds "my inner trader... wants to play the golds for a bounce." 

• Respected geologist/mining sector analyst Brent Cook came out very bearish recently on the gold miners. 

• Mark Hulbert provides five reasons to avoid gold for anything other than the very long term. 

• Gary Tanashian on how sentiment and technical analysis can help at a time like this for gold and gold miners: "It is okay to feel greedy now, in anticipation of coming opportunities in the precious metals." 

• At ZeroHedge, chartist Guy Lerner likes gold futures: "Despite the questionable fundamental picture, I believe this represents a good buying opportunity as price sits at support." 

• Global Macro Monitor finds gold heavily oversold. 

This commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

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Gold Advances in London as Price Slump Seen Increasing Demand

Gold gained for the first time in a week in London on speculation that prices near a six-month low will increase purchases.
Gold is down 3.7 percent this year and global equities are up 4.8 percent as speculation grew that economies are improving. About $1.2 trillion in automatic spending cuts stemming from a 2011 agreement are scheduled to take effect in the U.S. in March. Morgan Stanley said in a report yesterday it expects “bargain hunting” in gold this week.
“It’s very cheap,” said David Lennox, a resource analyst at Fat Prophets in Sydney, referring to gold. “The U.S. has still got to deal with budgetary and debt constraints, they’re not going to go away. While that’s still there, we think there’s opportunity for gold to rally robustly.”
Gold for immediate delivery added 0.2 percent to $1,612.90 an ounce by 11:26 a.m. in London. Prices reached $1,598.23 on Feb. 15, the lowest since Aug. 15. Futures for April delivery were 0.2 percent higher at $1,612.60 on the Comex in New York.
U.S. markets were shut yesterday for the Presidents’ Day holiday. Futures trading volume was almost triple the average in the past 100 days for this time of day. Bullion at the morning “fixing,” used by some mining companies to sell output, was at $1,613.50 in London, up from $1,610.75 yesterday afternoon.
Silver for immediate delivery rose 0.5 percent to $30.045 an ounce. It reached a six-week low of $29.6912 on Feb. 15. Palladium gained 0.6 percent to $766.83 an ounce. Platinum was up 0.1 percent at $1,694.97 an ounce.
Clashes between labor groups at Anglo American Platinum Ltd.’s Siphumelele mine in South Africa disrupted operations and caused one serious injury, according to police and the company, the world’s largest producer of the metal. Nine workers were shot with rubber bullets and three security guards were hurt in the fighting at the mine in Rustenburg yesterday.

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Are Central Banks Still In Love With Gold?

The recent price action of gold may lead some to believe the precious metal has fallen out of favor with the market, but central banks across the globe continue to love the safe-haven metal.

While some central banks print money in historic amounts, others are buying gold. According to the World Gold Council’s latest report, central banks purchased 145 tonnes of gold in the fourth quarter of 2012, the highest quarterly haul since the sector became net buyers in 2009. For the entire year, central bank buying surged 17 percent to 534.6 tonnes, the highest annual total since 1964. In comparison, central banks bought 456.8 tonnes in 2011.

Nations like Russia and China continue to find gold attractive. According to the WGC, Russia added approximately 75 tonnes to its reserve holdings last year by purchasing domestically produced gold. This echoes recently released IMF data that shows Russia added 570.1 metric tons of gold to its stash over the past decade, more than any other nation in the world. According to data from the Census and Statistics Department of the Hong Kong government, gold imports into mainland China from Hong Kong nearly doubled to an all-time high last year. China, the world’s second-largest economy and gold consumer, imported a record 834,502 kilograms (834.5 metric tons), including scrap and coins, in 2012.

Diversifying with gold…

Due to diversifying needs, gold is an easy answer for developing markets. The WGC explains, “The list of countries actively adding to their official gold holdings remains heavily concentrated in developing markets, which partly reflects the scale of growth in the reserves of these markets over recent years. As the official reserves of these countries swell, with their heavy emphasis on U.S. dollars- and euro-denominated assets, the need for diversification also increases. With a focus on high quality, liquid assets as desirable alternatives, gold is a natural destination for a proportion of these increased reserves. A number of research papers have addressed the issue of gold’s characteristics and benefits as a reserve asset, as well as optimal allocations for gold within a standard reserve asset portfolio.”

Since becoming net buyers in 2009, central banks have added almost 1,100 tonnes to global gold reserves, a sharp contrast to the 1,143 tonnes of net sales seen in the preceding three years. In fact, very few central banks are selling gold. The WGC reports  that under the Central Bank Gold Agreement, which caps gold sales, only 5.5 tonnes were sold throughout last year. This amount was fully accounted for by Germany and its need to mint commemorative gold coins.

Overall, gold demand in the fourth quarter reached 1,195.9 tonnes, the highest fourth quarter haul on record. Annual demand in value terms reached its highest amount in history at $236.4 billion.

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 News Source: www.marketwatch.com

Sentiment In Gold Changes; Watch Asian Activity

The short-term sentiment in gold changed this week, particularly as the market took out an important technical-chart level, but whether the metal extends its losses might depend on what Asian buyers do next week when they return from their Lunar New Year festival.
Prices were lower on the day and the week. Most-active April gold on the Comex division of the Nymex settled at $1,609.50, down 3.4% on the week. March silver settled at $29.869, down 5% on the week. 
In the U.S., markets are closed Monday for the Presidents Day holiday. Trade resumes Tuesday.
In the Kitco News Gold Survey, out of 33 participants, 25 responded this week. Of those 25 participants, nine see prices up, while 12 see prices down, and four see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Market participants said attitudes in gold for now have changed, pointing to an increase in open interest in Comex futures market as prices fall. Open interest is a count of the number of outstanding positions at the end of a trading session, and if that tally rises when prices fall, it’s considered a sign of new bearish positions established.
Some said news this week showing that major investors such as George Soros and Louis Moore Bacon sold some of their gold exchange-traded fund holdings, as listed in U.S. Securities and Exchange Commission filings, added to the change in sentiment.
Gold’s drop under $1,627.90 pushed the market into a loss for the year, and that move undercovered pre-placed sell orders which exaggerated the drop.
Jimmy Tintle, owner, GreenKey Alternative Asset Services, was impressed by the force that pushed gold through technical-chart support. Tintle, who said he’s been bearish on gold prices lately, said now that the yellow metal has broken through the $1,625 level that’s been talked about as key support for a few weeks, the action might entice some retail buying, which could slow gold’s descent.
“On a technical level, we finally closed the gap on the chart that was left in August. This typically is a good technical buying point. Gold is also oversold on the nearer-term charts, (but) still has a way to go on the monthly,” he said.
While he thinks the sell-off in gold could ease a bit, his outlook remains negative, especially since gold closed under $1,625 on Friday. “I would be looking at gold to reach the lower end of the congestion area from May 2012 to July 2012 (which runs from) $1,580 to $1,525. With all the currency wars going on, I would not be a buyer at this point, unless we get a solid close above $1,649. For the longer term, I believe gold needs to post a new 18-month low (falling to the) $1,400-$1,450 area or lower before seeing a run for a higher high.”
Market watchers said the short-term direction in gold will likely be influenced by what Asian traders do when they return from their holiday. With prices much lower than a week ago, these traders have a decision to make. Do they see the lower price as a bargain and load up the shopping carts, which would bring demand back to the market and raise prices, or do they become influenced by the negative sentiment and stay on the sidelines? If they don’t step in, prices could tumble further, several analysts said.
Not everyone is uniformly bearish. Some market watchers who suggested prices might rise said short-term sentiment has tilted to negative, which might be a contrary indicator and a reason to step in and buy. They also cited long-term support for gold from the ultra-loose monetary policy practiced by most central banks. Still others pointed out that short-term viewpoints and long-term viewpoints can be, and often are, two different things.
Looking to next week, market participants will watch the comments out of the Group of 20 meeting, which officially will be released Saturday. With talk of “currency wars” swirling, comments are likely to focus on influencing foreign exchange rates. Brown Brothers Harriman said most of the comments are likely to be “boiler plate stuff” such as saying that countries should allow foreign exchange prices to be determined by the market and the foreign exchange market needs to be able to clear global trade and capital flows without excessive volatility.
Focus has been on Japan lately, as the yen has fallen as Japan seeks another stimulus program to prop up its economy.  “In most discussions of currency wars, the focus is on the high-income countries, yet the reluctance of large current account surplus countries in lower-income countries to allow their currencies to participate in the adjustment process is an important part of the underlying tension,” BBH said.
So far the gold market has ignored the rhetoric of “currency wars,” most analysts said, but that could change.
Market participants will also look to the release of the Federal Reserve’s meeting minutes on Wednesday, which can affect market movements.
Traders could start to watch for news about the “sequester” in the U.S., which is a self-imposed deadline to deal with $85 billion in automatic spending cuts that would occur if Congress did not act. After the Presidents Day holiday, talks will heat up again. This week, Senate Democrats suggested delaying by 10 months the automatic indiscriminate spending cuts with a combination of cuts and taxes.
“Although volatility may start to increase as we approach the March 1st U.S. budget deadline, we don’t think we will see the kind of big moves we saw when the fiscal cliff stand-off first captivated the markets in December,” said Edward Meir, commodities consultant at INTL FCStone.


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News Source: www.reuters.com