-- Posted Thursday, 2 April 2009 | Digg This Article
| Source: GoldSeek.com
June Gold: Open= 929.1 High=931.8 Low=896.6 Last= 903.8 -25.3
A strong rally in global stock markets, a restriction in accounting rules, and promises to get tough on financial shenanigans by world leaders has lifted confidence of investors that there may be some light at the end of these dreary times. Despite the US dollar being hammered today, falling some 1.4%, gold could not find any buying support.
There was an added pressure coming out of the G20 meeting that directly impacted the fundamentals of the gold market. As part of the plan to triple the amount of funding to the IMF, the institution may be asked to sell some of its gold reserves to raise additional funds. This comes on the heels of increased selling by the European Central Bank, which has sold some 33 tons of gold last week.
Accounting standards in the US were changed by the Financial Accounting Standards Board, allowing banks to use more judgment in mark-to-market accounting. This may very well help banks report better results as they won’t need to write down losses on so-called ‘toxic’ or ‘distressed’ assets, which may simply be illiquid at this time. The fact that PIMCO and BlackRock have come to the table to purchase some of these distressed assets is perhaps a sign that values may be well higher than where currently ‘marked’ to the market. It has been reported that PIMCO may be offering to buy some assets at 60 cents on the dollar, which would vastly improve the balance sheets of many banks.
The ‘end of the world’ gold bugs had some of the air let out of their balloons today as a rather calm G20 meeting occurred, as do most types of these photo ops. The real nuts and bolts are decided behind the scenes. While it is tough to make substantial positive changes at a one-day meeting, negative consequences are much easier to produce but any fears about China or Russia doing some serious feather ruffling did not materialize. Gold bulls should take solace that the feel-good stories about economic improvement in the past few days have helped firm commodity prices and that is the potential inflation many are truly worried about.
The price of gold has once again broken the trend-line and is in jeopardy of violating the lows of March 18, at $885, which would be a bearish turn of events. Two weeks ago, bulls were likely saved by an out-of-the-blue announcement by the Treasury Secretary, which led to a $70 reversal in the market. Bulls can cross their fingers but it appears that low will be put to the test in the next few sessions. It simply may take more time for inflation to work its way into the economy and gold prices may need to consolidate at lower levels before then. Physical gold sales in India are week, the ECB is selling again, and the IMF may be pressured to make large sales, as well.
With the internal supply/demand fundamentals for gold weakening, it may be too much to support at the moment. If the March 18 lows are violated, the next downside target is near $860. A retracement to the 61.8 Fibonacci level would be to the $820 level.
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-- Posted Thursday, 2 April 2009 | Digg This Article | Source: GoldSeek.com
