Monday August 12, 2013 11:30 AM
(Kitco News) - Chinese demand, chart-based buying and short
covering are all being cited as factors that helped gold surge to a
nearly three-week high Monday despite a mostly stronger tone in the
Some observers also cited softer-than-forecast Japanese economic
data. Also, an inflow into the world's largest gold exchange-traded
fund on Friday was listed as an influence helping sentiment, since
previously ETF withdrawals had exacerbated the weakness in gold
since the start of the year.
Technically, gold may gain further upward momentum if it can
break and close above $1,350 an ounce, analysts and traders
"There was very good physical demand overnight out of Asia,"
said Bill O'Neill, one of the principals with LOGIC Advisers. "That
got things going, and it kind of built upon itself….We hit (buy)
stops as the session wore on."
As of 10:45 a.m. EDT, gold for December delivery was $27.40, or
2.1%, higher to $1,339.60 per ounce on the Comex division of the
New York Mercantile Exchange. The contract peaked at $1,343.70, its
strongest level since July 24. September silver was up 92.3 cents,
or 4.5%, to $21.33 an ounce and hit a high of $21.36 that was its
loftiest level since June 19.
"I think it's technical," said Phil Flynn, senior market
strategist with Price Futures Group. Several analysts said pre-set
buy stops were triggered as the market moved through key chart
But other factors were at play as well, including a fresh news
report about the robust demand from China so far this year. The
China Gold Association said that the country's gold consumption in
the first half of 2013 rose 54% year-on-year to 706.36 metric
"You still have China on a gold- and silver-buying binge," Flynn
said. "At a time when prices were falling, China continues to buy.
That report today is a reminder that there is still a lot of
physical demand for the metal.
"We know, of course, in India they have tried to slow down
demand with import duties and other issues. But I think even in
India, you're getting a black market going for the metal."
Kevin Grady, president of Phoenix Futures and Options on the
Comex floor, said gold futures are in slight backwardation, in
which prices for the nearby contract are more expensive than for
deferred contracts and seen as a sign of a tightening market.
Normally, deferred contracts are more expensive due to costs such
as storage. As of Friday's close, August gold had a 70-cent premium
"There is definitely buying in the physical market," Grady said.
"It's coming out of Southeast Asia and it's coming out of the
Middle East, and it's strong. There's been buying the entire way
Flynn and O'Neill also pointed to an increase in holdings of
SPDR Gold Shares on Friday as a factor that may be helping
sentiment for the metal. The Web site of the world's largest gold
ETF showed that holdings rose by 1.8 metric tons to 911.13 tons,
the first increase since June 10. For the year, however, holdings
are down by 450.69 tons.
"We saw people actually getting to get back into gold (via
SPDR), so that was a good thing," Flynn said. "It is showing
perhaps the (ETF) investment demand that has been non-existent in
gold could be coming back."
Flynn also said softer-than-expected economic data in Japan may
be lending gold support since country "is probably going to go full
speed ahead with more stimulus."
Japan's gross domestic product grew at an annualized rate of
2.6% in the second quarter, roughly a percentage point below most
consensus forecasts. Financial-market participants are now
wondering whether the country will go ahead with a planned hike in
"It (the data) would increase the odds that we're going to have
more stimulus in Japan. And that, of course, is bullish for the
metals," Flynn said.
The rise in gold is occurring against a backdrop in which a
number of mining companies, reporting losses in the second quarter
largely due to a fall in the
price of gold
, have been announcing cutbacks in operating expenses and capital
expenditures for new projects, Flynn pointed out.
Technicals, Short Covering Play Key Role In Rally
Grady and O'Neill said traders who had short, or bearish
positions, were buying to cover or exit those trades.
Part of this may be due to doubts among some about whether the
Federal Open Market Committee will start tapering its quantitative
easing in September, as many expect, Grady added. If the Fed does
not taper, this will add to inflationary worries, he said.
Meanwhile, Grady said, buy stops were triggered in December
gold. "Above the $1,330 level and $1,335, you saw some big sweeps,"
December gold moved more convincingly above the 20- and 50-day
moving averages that it flirted with the last two days. The 20-day
average now passes through $1,310.80, while the 50-day is at
Traders will be watching to see if gold can pop above $1,350, a
level not touched by the December futures since June 20. The market
stalled just shy of here on July 23 when it peaked at
"If we were to break through $1,350, it would be significant and
you would probably see additional stops hit," O'Neill said. "That's
an important resistance level. If we break through there, the rally
could be extended further."
However, Grady pointed out, there is also potential for some
hedging by gold producers on an uptick.
Silver, meanwhile, is rising after having traded in a sideways
pattern for more than a month, Flynn said. Since late June until
the end of last week, the September futures had meandered in a
range between the June 28 low of $18.17 to the July 23 high of
$20.595, before hitting a nearly eight-week high on Monday.
Several observers said that gold on Monday is breaking its usual
inverse correlation to the U.S. dollar. The metal was up even
though the September dollar index was up 0.255 point to 81.425.
"Gold and silver are extending the run even with the dollar
being stronger," Flynn said.
Read the latest news in gold and precious metals markets
By Allen Sykora of Kitco News email@example.com