Gold Prices Still Cheap vs Falling Dollar


"'For an investor who would like to build a position, it's a lot cheaper than it was a few years ago.'"

Gold and U.S. dollar

Gold prices ticked higher against the dollar following last week's 2.2% rally in London trade Monday, but slipped against the euro as the U.S. currency fell towards two-week lows on the FX market.

Rising above $1.09, the Euro reclaimed its sudden spike—the sharpest move in its 15-year history—made after the U.S. Federal Reserve surprised analysts and traders on Wednesday by tempering its forecast for Dollar interest rates.

That pushed euro gold prices down to €1,085 per ounce, extending last week's 1.1% drop from the previous Friday's six-week closing high.

German chancellor Angela Merkel meantime met with Greek Prime Minister Alexis Tsipras today in Berlin, but debt renegotiations were apparently not on the agenda.

In southern Spain, anti-austerity Podemos party won a greater than expected share of the vote in regional elections in Andalusia on Sunday.

France's "far right" political party Front National—whose leader Marine Le Pen has urged quitting the euro and re-launching a heavily devalued franc—was held in third place in local elections over the weekend on low turn-out.

"The bullish key reversal in the weekly candles underscores the dramatic upswing observed in the past four sessions," says a technical analysis from market maker and LBMA Gold Price participant Scotia Mocatta.

After falling just $5 above new five-year lows on the benchmark London daily price last Wednesday, gold climbed "to break above the 21-day moving average at 1,182," Scotia goes on.

"Signals are slow in warning of a turn, [so] we look to $1,200 as the next key risk level to the upside."

"The thing with gold is," Bloomberg quotes $5 billion Permanent Portfolio Family fund manager Michael Cuggino, "it's gone from $1150 to $1180—not that big of a move.

"For an investor who would like to build a position, it’s a lot cheaper than it was a few years ago."

With gold prices near fresh five-year low ahead of last Wednesday's U.S. Federal Reserve policy statement, speculators in U.S. futures and options held the smallest bullish position on gold prices—net of their bearish bets as a group—since November 2014's plunge to new 4.5-year lows, according to weekly data for Tuesday's close released by U.S. regulator the CFTC.

The number of bearish contracts held by those speculative, 'non-commercial' traders rose above 100,000—a record high for short contracts when first breached during Spring 2013's crash in gold prices.

Looking at 2015's fund management appetite for gold, "There is still scope for downward pressure in the near term," says wealth management group Barclays Capital, noting that "the bulk of [gold ETF positions] bought this year are still loss-making.

"[But] seasonal demand from India should help to cushion prices."

Major Western gold ETF saw the quantity of bullion needed to back their trust-fund shares slip again last week, cutting 2015's additions to the giant SPDR Gold Trust (NYSEArca:GLD) from February's peak of 64 tonnes to just 35 tonnes at total holdings now below 745 tonnes.

Next month brings the Indian Hindu festival of Akshaya Tritiya, first promoted a decade ago as an auspicious time to buy gold.

"Imports are picking up," the Platts news and data agency quotes one Indian wholesaler, "but in the last few days we have seen a slowdown in sales."

Adrian Ash
Bullion Vault

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