Gold Breaks Through $1,300 And Holds On

Yesterday was a good day if you were looking for reassurance about your gold investments. Gold rose solidly above $1300 thanks to a weakening dollar index, short covering and stop-loss buying as the yellow metal broke through that key resistance level.

The US dollar index fell to a four week low yesterday perhaps due to far weaker than expected data releases, namely housing data. The weak dollar may also be due to the G20 meeting at the weekend in which a commitment to austerity was once again reinforced.

For now, we can perhaps believe that Bernanke has successfully reassured markets that QE Infinity would carry on for the foreseeable future. We must keep an eye on, however, rising US bond yields and mortgage rates which are likely to prompt the hawks to call for tapering.

It wasn’t just gold that benefitted but silver as well as futures climbed to a four week high yesterday.

Short lived gold recovery?

Many warn that this new found strength in gold will be short-lived. Tapering by the Fed is said to end ‘at some point’, therefore gold’s recent gains cannot go on forever. Added to this the large number of short-positions that also helped to drive the gold price higher yesterday. Roubini Global Economics yesterday said that “endgame” is coming for gold, ‘”Weak U.S. data and falling inflation could all serve to prolong QE, providing a boost to the gold price. But the U.S. economy is improving and QE will gradually come to an end-this endgame is the scenario that gold investors need to be positioned for,”

However, should any of these factors change and no longer favour gold (which we think unlikely), the Eurozone looks like it may step in once again to help the yellow metal’s cause.

This morning’s CityAm points out that the previous two summers have seen the problems in the single currency union reignite. Deutsche Bank’s recent analysis also shows a ‘two-speed’ economy in Europe as countries such a Britain pick up the recovery pace, whilst Spain, Italy and Portugal (to name a few) continue to struggle.

India sneezes once again

As I have quoted many times, “If India sneezes, the gold industry will catch a cold” – Ajay Mitra. Not so yesterday gold continue to rise up above $1300 without looking back despite a rather disappointing announcement from the Reserve Bank of India.

As we reported in the Social Gold Mine, via Mineweb, the RBI, despite June gold imports falling by 70%, have decided to a step (more like a leap) further by passing a mandate that states 20% of all gold imports must be reserved for export.

The country is expected to face a gold shortage during the festival season at the end of the year. During this period, in previous years, we have seen a boost to the gold price however further restrictions may mean that gold loses this support.

The rupee gained after the RBI’s announcement as hopes that the current account deficit would come under control as a result of the restrictions. However, given rising oil prices this gold import remit is likely to have a muted effect of the CAD.

In response to the central bank’s announcement, the All India Gems and Jewellrey Trade Federation said that this recent move was ‘like a ban…nobody will import gold with this type of restriction.’
China buys up platinum

Yesterday Barclays said that China’s platinum imports surged in June, the demand has countered the weaker demand seen in Europe. Whilst platinum imports are up 8% year-to date, palladium imports are down 8%, whilst silver imports are down further by 10% to 199.5 tons. Despite the country being one of the top silver producers, the demand for the metal is driven by Europe.