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Gold is in a tug of war between the bears and the bulls this week, fighting off forces determined to push it down below the psychological $1100 level while at the same time struggling to break above $1135 an ounce.
Gold is in a tug of war between the bears and the bulls this week, fighting off forces determined to push it down below the psychological $1100 level while at the same time struggling to break above $1135 an ounce.
“Gold refuses to fall substantially, but resistance to a move higher is equally great at this stage,” commented Standard Bank analyst, Walter de Wet.
According to FXstreet, “There seems to be two increasingly divergent aspects dominating risk appetite right now, the stability of the Eurozone with all its problems and the growth of the rest of the world.”
After rising 1.5 per cent last week, the price of gold fell Monday to close at $1124 in New York as the dollar gained amidst a deepening debt crisis in Greece. The yellow metal fell as low as $1108 Tuesday morning, its lowest price since February 26, as the dollar strengthened further, oil prices dipped off eight-week highs and China balked at rumours its aggressively buying up gold. The precious metal managed to pull itself out of the hole to close about even at $1122 an ounce.
Greece’s debt problems and continuing troubles in the UK and Portugal are feeding the dollar, but the European debt crisis has also been price supportive for gold as Europeans seek a hedge against the euro. As gold usually runs counter to the dollar, events in the euro zone have become a prime factor in the precious metal’s recent price volatility.
China Still Behind the Wheel
The currency market may have primary influence over the gold market, but China is still in the driver seat when it comes to shaping the global economy making it a secondary influence on the gold market.
Gold’s early morning jump above $1125 Wednesday came after news that China’s trade surplus reduced to $7.6 billion for February from $14.2 billion in January indicating domestic demand for commodities is growing. However, those gains were later lost as some traders grew cautious after pondering the impact on interest-rates in China, suggests market guru Jon Nadler.
Gold continued its back and forth sway Wednesday dropping as low as $1109.30 early in the day, rebounding nearly $20 in a matter of an hour before dropping back down to $1109 shortly after, hurdling downward on stop loss selling.
Last month, gold shot up $10 in one day on wildly inaccurate reports out of Russia that China was looking to buy gold from the International Monetary Fund. And regardless of how many level-headed analysts tried to debunk the rumour, the market was alive with those who bought the bait.
Earlier this week, China’s Yi Gang, head of the State Administration of Foreign Exchange, shrugged off speculation his country is looking to aggressively build up its gold holdings as its main reserve investment. While China, the world’s fifth-largest gold holding nation, has increased its gold reserves by nearly 500 tons since 2003, Yi said “it is, in fact, impossible for gold to become a major investment channel for China’s foreign exchange reserves.”
“The size of the world’s gold market is small,” explained Yi. “China’s purchase will push up the prices. That will also hurt Chinese gold consumers.”
The comments were partly to blame for gold’s dip to $1108 Tuesday, dampening the bullish sentiment still lingering in the market after last month’s IMF purchase speculation.
But, some analysts are still confident China will continue to grow its gold holdings–just not off the international market. As the world’s largest gold producer and second-largest consumer, China is expected to look to its own domestic producers as well as acquiring stakes in gold mines abroad.
Of course, there are those who adamantly believe Yi’s statements are all a part of a larger scheme by China to depress prices so it can pick up gold at bargain rates. Just as eternal skeptic Mr. Nadler warned earlier this week: “Mr. Yi’s comments will be dismissed as ‘posturing’ and as ‘trying to talk the gold market lower so the China can then back up the truck’ and other similar fairytales.”
For now, everyone will have to wait and watch. The words of RBC Capital Markets Global Futures VP George Gero offer the best advice: “It’s not what the Chinese say, but what the Chinese do that everybody is going to be interested in.”