Gold rose nearly 1% in early trade in Asia to a high of $1,635/oz. Gold remained higher until sharp selling was seen at 09:20 GMT this morning leading to gold falling to $1,597.35/oz just before the London AM Fix. A fall below yesterday’s low of $1,596.05/oz could lead to a sharp fall to the low from September 26th when gold fell to $1,532.72/oz.
Yet another unsourced rumour - this time that European Union officials are examining ways to recapitalize banks in the region - led to a massive short squeeze which propelled U.S. indices some 4% higher. Bernanke’s comments that he would take further action to support the fragile U.S. economy likely also supported equities and hindered gold.
Given the flimsiness of the EU bank rumour, it is worth considering whether the Working Group on Financial Markets may have intervened in order to prevent further sharp declines in stock markets and a possible crash.
Asian indices greeted the rumour with skepticism and were more subdued especially after the slashing of Italy’s credit rating by three notches. This saw the Nikkei fall another 0.86% while other Asian indices were mixed.
European stocks rose at the open amid the continuing speculation regarding “assistance” for European banks. Continuing signs that this latest price decline is another sell off due to speculators taking profits and being forced out of positions due to margin calls continues to be seen in the very robust demand being seen in Asia. These strongly suggest that the fundamentals of the gold bullion market remain sound.
Premiums on gold bars in Asia have remained steady at $2 an ounce to spot London prices in Singapore. These are the highest premiums since February. Vietnam gold bars were at a premium of $72.49 to world gold of $1,662.90 (Monday $88.81/$1,632.35) yesterday morning.
Markets in Hong Kong were closed for the holidays as the Chinese "Golden Week" continues. Thus, no premiums were available from Hong Kong.
Physical demand has surged across Asia after the recent decline in gold prices and this is leading to a “tight supply of gold bars in Singapore and Hong Kong” according to Reuters this morning.
Reuters quoted a physical dealer in Singapore who said that he believed "supply is going to be tight until the end of October. It's difficult to generate enough stocks without any selling back from the market."
Past experience is leading western gold and silver buyers to be more savvy and we are seeing far more buying on this dip and far sooner than on previous sell offs. Throughout this bull market GoldCore has tended to see stronger buying as gold moved towards intermediate highs and a lack of buying on sell offs and when gold was at intermediate lows.
There is a notable change on this sell off as some clients were reluctant to buy when gold was surged over $1,900/oz and left cash on account. These same clients have begun accumulating again in recent days.
Analysts at Goldman Sachs reiterated their 12-month gold price target of $1,860 an ounce as the fundamentals have not changed.
”As we expect gold prices will continue to be driven in large measure by the evolution of U.S. real interest rates and with our U.S. economic outlook pointing for continued low levels of U.S. real rates in 2012, we continue to recommend long trading positions.”
Bank of America Merrill Lynch said it was maintaining a forecast for gold to reach $2,000 an ounce in 12 months, the bank said in a report today.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.