Friday's insta-rally turned oversold conditions in the gold market to overbought ones in a matter of a few hours. The new week's start displayed some of the factors that brought gold right back up to the $960s resistance area, as still at play. Chief among them, the $71-plus price tag that is still attached to a barrel of crude oil. A rise in Chinese factory output to levels not seen in about one year, coupled with similar findings last week in the US,is clearly encouraging speculation in the commodities complex, and is helping gold get back to values last seen on June 11.
However, along with such profit plays, come other price tags as well. One Japanese fund manager describes gold at the current level as trading against a background where: The gold ETF is unchanged, India demand remains slack, COMEX positions stay high, showing that everybody who wanted to buy gold has bought, leaving a question as to who's left to buy. And, yes, from a technical viewpoint, bullion does appear overbought. Last time we checked, that did not appear to prevent oil from doing what it is doing. It is just that it makes the inevitable corrections that much more spectacular, as well.
Monday's trading session saw gold opening with a near half-percent further gain, quoted at $958.40 per ounce. Silver added 36 cents to start at $14.27, while platinum roe $10 to $1219 and palladium gained $4 to $266 an ounce. Traders we polled alluded to the boisterous party in the base metals pits as the fuel for the one in precious metals. The US dollar was off by 0.20 at 77.94 on the index and back o 1.4295 against the euro as metals tickers started rolling again.
Nickel and zinc, for instance, gained better than 4% this morning,pushedalongby speculatorswho see nothing but gains in commodities from the reading in the Chinese manufacturing index. Certainly, as far as the noble metals are concerned, the party that General Motors is attending in China, is a happy one indeed. Its sales in the country were up 77.7% last month, representing GM China's best July ever.
A Reuters analysis sees that : Gold may face strong resistance breaking and keeping gains above $960 as net long futures positions and a narrower gold/silver ratio suggest investors may find other precious metals more appealing than bullion. while India's Livemint finds that: “There are no buyers as prices went up on Friday,” said a dealer with a state-run bank, adding “Though the rupee is supporting, traders are waiting for lower prices.”
Meanwhile, Marketwatch's Peter Brimelow observes that: For the umpteenth time, gold bugs think gold may be poised to break $1,000. The last week of July definitely lacked summer somnolence in the gold market. A brutal $14.40 sell-off on Tuesday caused chartists great distress. But gold held. And then on Friday it staged an even more powerful recovery, rising some $20, closing at $954.50 and repairing the week's technical damage. Of course, the gold bugs are ruefully aware that they've been here before. They are aware of the danger of taking summer Fridays, and especially month-ends, at face value.
We are back to China driving, well,...everything. Again. Or, so say the agit-propsters. At least untilspeculators regain the awareness that it takes a bit more than one reading from one country to make things all better, all over the globe. That, and the recognition that demand destruction is the typical reaction to momentum players having pushed values beyond certain limits.
Look for a lot of media attention if gold manages a break even to $974 on this teeter-totter of a chart. And keep a small note in the back pocket - one containing the warning by Nouriel Roubini that China's restocking in commodities has been excessive, and that it might lead to a fall in commodity prices before this year is over. Nota bene.