The gold price hit its highest in more than two weeks on Monday morning on short-covering and the unexpected announcement that Japan has slipped back into recession.
The spot gold price was last at $1,186.60/1,187.40 per ounce, down $2 on Friday’s close but up significantly from last week following a rally on Friday afternoon from a low of $1,146.90. It peaked at $1,195.50 earlier this morning.
The rally was spurred by large short covering on a weaker dollar, which dropped as low as low as 1.2577 against the euro at one point before recovering to 1.2498. Should the dollar show further signs of weakness early this week, gold could move towards $1,200, with resistance forming around $1,192.
“We wait to see if the rallies are sold into, which would show underlying sentiment remains bearish, or whether there is further short-covering. Given the speed of the moves, we would not be surprised by more short-covering – many of the shorts, who must be sitting on significant profits, may be worried about seeing those disappear,” FastMarkets analyst William Adams said.
Physical demand has also slightly improved, particularly in China, with premiums on the Shanghai Gold Exchange up to around $1 over spot from level last week.
“Although the physical market has responded to a lower price environment, demand has not been sufficient to stem the tide of disinvestment,” Barclays said in a note. “ETP physical holdings are now at September 2009 lows, while gross shorts are the highest since July 2013.
“Should physical demand provide a firmer-than-expected floor, prices could be subject to a short-covering rally. Given our macro forecast, we would view these rallies as an opportunity to short gold,” it added.
Also providing support for safe-haven assets is Japan’s return to recession for the fourth time since the financial crisis, with quarterly preliminary GDP at -0.4 percent against a median reading of 0.5 percent.
Japanese Prime Minister Shinzo Abe may call for an early snap election next month, which raises the likelihood that Tokyo will delay a second increase to the sales tax that was on the slate for next October.
Data today is unlikely to add any real volatility to the market. Already, the Italian trade balance undershot at 2.01 billion euros, with the eurozone trade balance, monthly Buba report and a speech from ECB president Mario Draghi to come.
Out of the US today, the Empire State manufacturing index, capacity utilisation rate and monthly industrial production figures will be eyed.
In the other metals, silver followed gold on Friday afternoon, surging as much as 4.3 percent, but it was last 15 cents lower at $16.14/16.19 per ounce,
The PGMs were steadier – platinum at $1,202/1,207 was $6 lower while palladium at $762/768 is up $4.
“We are surprised that the PGMs did not follow bullion prices more – we still feel they are oversold so there may well be room for them to play catch-up,” FastMarkets analyst William Adams added.
(Editing by Mark Shaw)
The post Gold price holds two-week high, move towards $1,200 possible appeared first on The Bullion Desk.
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