Gold and silver prices staged dramatic reversals Monday after
diving to new lows in early trade on heavy short covering,
bargain hunting and a weaker dollar.
Gold spot prices climbed 2.54% to $1,396 an ounce.
"Gold has long-term support at $1,300 (an ounce). The next
support levels would be the 100 levels, $1,200, $1,100,
especially $1,000," James DiGeorgia, editor of "Gold And Energy
Advisor" wrote in a client note Monday. "Prices are close to
break-even for many gold manufacturers. Once prices go below the
production cost for gold, suppliers will probably cut production,
and prices would stabilize and even rally."
stock market today
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, surged 3.09% to 135.12
after nearly revisiting a 52-week low in early trade.
Market Vectors Gold Miners ETF (
) vaulted 6% to 28.03 in heavy volume after bouncing off its
lowest price in four and a half years.
Overly Bearish Sentiment
Bearish sentiment has reached rarely seen extremes, increasing
the likelihood of a gold rally as the market usually defies the
crowd, says Tom McClellan, founder of "The McClellan Market
"Sentiment is skewed right now in an historic way, and that
will make it nearly impossible for the price decline to continue
in a meaningful way," he wrote Friday.
The yellow metal likely is bouncing from oversold levels but
as it tries to rise, disappointed
will sell to end the pain, giving way to a "very volatile
and prolonged" downtrend, says Richard Peterson, managing
director of MarketPsy Capital in Santa Monica, Calif.
"There is a lot of hot money betting gold will fall and a lot
of panic," Peterson wrote in an email. "As the U.S. economy
recovers, the long-term fear and pessimism that drove most gold
investment from the U.S. will thaw," Peterson wrote. "And gold
investors will then realize they should take some risk in
equities rather than holding on to a zero-yield asset with a
Supply And Demand
The gold bugs argue that epic physical buying in China and
India proves demand for jewelry and bullion remains robust.
Chinese demand totaled 294 tons in the first quarter, up 20% from
the year-ago period,
The World Gold Council
stated in its latest report. In India, total demand rose 27% year
over year to 257 tons. Central bank buying totaled 100 tons,
marking the ninth straight quarter of net buying, although it
eased 5% from a year ago.
But panic buying in China and India is a contrarian
bear-market indicator, says Ron DeLegge, editor of
"A true market bottom in gold, or any asset, is always greeted
with panic selling, not enthusiastic buying as we have now," he
wrote in an email. "Gold bugs that think they've seen
capitulation in the gold market haven't seen nothing yet."
DeLegge recommended shorting, to profit from falling prices, in
mid-February by buying
Direxion Daily Gold Miners Bear 3x
) and put options on GDX.
On a global basis, gold demand in the first quarter fell 13%
from the year-ago quarter to 963 tons, the WGC reported.
Technology demand fell 4% to 102 tons. Global jewelry demand
lifted 12% to 551 tons. ETF investors redeemed 177 tons, while
total investments in gold bars and coins came to 201 tons.
Overall investment demand -- including
, bars and coins -- totaled 320 tons, about the same as the
year-ago period. Total mine production rose 4% to 688 tons.
Effects Of U.S. Dollar
Aside from waning investor demand, gold has been pummeled by
the dollar's strength -- owing to weakness in the eurozone
economy and Japan's currency debasement. A stronger dollar drives
down prices in dollar-denominated commodities. Both the yen and
euro snapped back from new lows Monday, pushing the U.S. dollar
index down. But the outlook and charts for both currencies look
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, slipped 0.61% to 22.78. It appears to be pulling back
from overbought levels and remains in a strong uptrend
"Investors have shifted their buying towards equities,
especially dividend-paying stocks," DiGeorgia wrote. "This trend
and the stronger dollar have been bearish for gold."
Silver prices surged 2.96% to $23.02 an ounce.
IShares Silver Trust (
) gapped down 2.5% at the open to a fresh 2 1/2-year low. It
rallied the rest of the session, ending ahead 4% at 22.25 while
volume swelled three times average.
Silver Miners ETF (SIL) also gapped down at the open to a new
all-time low and reversed higher. It closed up 5% to 13.50.
Silver will likely see selling for the foreseeable future on
any attempts to rise owing to low demand and huge stockpiles,
according to analysts at
"We estimate that above-ground inventory in China (the growing
source of demand since 2009) is currently as high as 18 months of
fabrication demand, up from 16 months at the start of 2012 and
only four months in 2009," they wrote in a client note. "While
the futures market is getting increasingly short, with the
backdrop of the metal contained in stockpiles, we still expect
rallies to fade."
Gold ETF holdings have shrunk 17% this year, while silver ETF
holdings have ticked up 1%. The potential for ETF selling puts
even more pressure on silver, they added.
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