Gold prices slip $10 from new 6-month high, Futures markets adds fresh "frothiness"

14 Mar 2014 Last updated at 01:05:51 GMT

LONDON (Scrap Monster): Gold prices touched new 6-month highs above $1374 per ounce at the start of London bullion trade Thursday, drifting $10 lower as European stock markets held flat but major government bonds retreated.

Silver dropped to $21.18 per ounce, halving the week's 2.5% rise in gold prices so far.

Copper cut its earlier 5% drop for the week, called "excessive" with "no fundamental justification" by commodity analysts at Commerzbank in Germany, despite the plunge in China's exports of goods reported earlier this week.

New data today said China's retail sales, urban investment and industrial production all missed analysts' forecasts badly in January.

Three days before Crimea's referendum on splitting from Ukraine to join Russia, the parliament in Kiev today voted to create a National Guard of 60,000 soldiers - effectively taking the army's strength back to 2009 levels from the current 184,000.

"Given bullion's technical break" of the October high at $1361, says gold price analysis from HSBC, "it may be at risk of profit-taking in the near-term, barring an escalation of Eastern European tensions."

"Watch the channel upper limit," says French investment bank and fellow London bullion market maker Societe Generale, switching its formerly bearish stance to bullish and calling $1375 current resistance from gold's "steep rising channel" starting New Year's Eve.

Touching new 17-month highs on the FX market today, the Euro capped the gold price for Eurozone buyers at a 4-month high of €990 per ounce this morning.

UK investors wanting to buy gold today saw the price peak at £825 per ounce, some 15.4% higher from the last day of 2013, when the Sterling price hit its lowest level since Feb.2010 at £715.

"Inflationary pressures are becoming apparent," said the Reserve Bank of New Zealand today, raising interest rates from record lows despite the Kiwi Dollar already trading at near-record highs.

"Growth in demand has been absorbing spare capacity."

Also known as the output gap, such "spare capacity" says Steven Barrow at Standard Bank "could offer a way out" for the major central banks to avoid breaking their own rate-raising plans in 2014.

The US Federal Reserve – like the Bank of England and Eurozone's ECB – "needs to make it clear that rates will not rise soon in spite of the fact that the unemployment rate is close to the [stated] threshold," says Barrow.

Initial US jobless claims last week were the lowest since November, new data said Thursday.

"Considering [last] Friday's US payrolls data," writes Joni Teves at Swiss investment and bullion bank UBS, "we are surprised by gold's move this week."

Teves also points to what she calls "the frothiness of spec[ulative] positioning [and] subdued physical demand.

"We expected the gold price to stage a reversal" after rising more than 12% already in 2014.

US gold futures expanded sharply again on Wednesday, with open interest now growing by one-eighth from the start of March to reach almost 436,000 contracts.

Gold price betting through US futures fell in 2013 to an average open interest of 408,000 and ended the metal's worst year since 1982 at a 42-month low of 370,000.

That compares to the previous 5-year average of 460,000.

Meantime in Asia on Thursday, "Physical selling was abundant," in the afternoon session says a note from refining and finance group MKS.

Shanghai Gold Exchange prices, typically trading at a premium to London settlement, continued to offer a discount today, but reduced the gap to $3.60 per ounce from Wednesday's 15-month record of $4.30.

Courtesy: www.bullionvault.com

Author: Paul Ploumis