Gold Bullion Hammered

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The next upleg in precious metal prices is seen as taking time to develop, although the Bank Credit Analyst "would buy gold for a ‘trade' on a washout below $850/oz."

After rising close to $910/oz in Asian trading on Wednesday, gold bullion was hammered in heavy waves of selling starting shortly after trade started in London. Within three hours, the price had punched down decisively through $900/oz, and after piercing below $890/oz, found some support, to recover a few dollars per ounce.

While many who speak on gold tend to the bullish side in times of good and bad, hunting the world for the slightest positive sign that the gold price will rise into eternity, it was on Tuesday that the Bank Credit Analyst issued a decisive recommendation: "Precious Metals Downgrade To Neutral".

Precious metals were heavily sold off on Tuesday, but found temporary support in overnight Asian trade, as mentioned. Referring to the recent bounce in precious metals prices, limited downside in the dollar against the majors, and rising risks of an oil correction (which may have set in on Tuesday), the Bank Credit Analyst said on Tuesday that it was "an opportunity to downgrade the sector from overweight to neutral. We expect ranges to emerge in gold, gold shares and silver prices. Gold should outperform silver in this environment as the latter is more dependent upon investment demand. Stay long the gold/silver ratio (GSR)".

Analysts say that technical factors support the fundamental case for a neutral weighting on precious metals. Gold prices, according to the Bank Credit Analyst, "may well have a washout below the $850/oz support level before the cyclical bottom is in place. Gold shares could return to their tight range of 2006 and the first half of 2007, as they lose ‘market share' to ETFs (exchange traded funds). The GSR could see a wave of buying if it moves back above the 200-day moving average". The next upleg in precious metal prices is seen as taking time to develop, although the Bank Credit Analyst "would buy gold for a ‘trade' on a washout below $850/oz. The bullish excepthunkmay well be platinum, although we hope to buy from lower levels".

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