-- Posted Monday, 2 April 2007 | Digg This Article
I've copied and pasted my note from last Thursday below in italics because I feel the same principle is applying to the precious metals market today. There is no clear reason with the dollar down, oil prices volatile (but still holding over $65), no resolution to the UK/Iran standoff now going into it's second full week and only bullish news entering the market from a demand standpoint that precious metals should be falling. News from the Abu Dhabi gold market is that sales have been up 15% in March. We're entering one of the strongest demand seasons of the year over the coming weeks with the beginning of the Indian wedding season. According to IMF data, France is the only ECB seller of any significance in the market and they're coming to the end of their allotment of sales in short order.
We're going to move higher and I think that move is shaping up to be a significant one and in short order. Again, we'll see if my thesis on increased bank sales is born out tomorrow morning with the release of that data. At least we won't have to see the profit taking, book squaring excuse today as the reason for gold's fall and analysts will have to come up with something new as to why precious metals prices are falling when they should be having the polar opposite response. My bet is that we're seeing sales and we're seeing them from only one country…a country who's allotment is about to run out. The wet blanket on the market could be getting pulled off just as we hit peak seasonal demand.
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It looks like today might be shaping up to be "one of those" where there isn't anything happening in the market that is a rational explanation behind a $8 plunge in 5 minutes in the price of gold. Oil is up, the dollar is flat, and there has been no resolution to the Iran/UK standoff, so what is happening? The final US 4Q GDP data was released right at the same time gold started it's decent. The data was slightly better than expected, but nothing that should change markets that much. We'll couch it as a timed bear raid on the price since gold was sitting right at a bottom technical point indicator.
So what's that all mean? We should see prices recover over the next few hours. If it turns out there is some significant selling by ECB banks again this week, look for the snap back, post London close where that selling takes place. The traditional secondary price drivers (oil and dollar) haven't changed, ECB sales have been swamping the market and we're still moving higher.
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-- Posted Monday, 2 April 2007 | Digg This Article
