Physical market resists a move higher in gold

Base on Standard Bank physical gold flow index, remains in negative territory, indicating continued resistance, from the physical market, to a higher gold price. The index tracks physical gold buying and selling, including scrap gold, on a daily basis. The last physical flow update at the start of June (Commodities Daily 3 June 2010) reported large amounts of scrap and other
physical selling in the gold market. This trend has continued throughout June and, although it has slowed somewhat in intensity, selling still outpaces buying.

In June, gold ETFs added 76 tonnes to their holdings (ETF holdings increased from around 1,956 tonnes at the start of June to 2,032 tonnes yesterday). The investment market is very bullish
and, without the scrap and other gold selling in the physical market, the gold price could arguably have been much higher. The extent of the selling in the physical market is evident from the
index which pushed deep into negative territory during April, May and June (an index value below zero indicates net selling in the physical gold market). The selling we witnessed compares well with levels seen in Q1:09.

However, the report are also witnessing a trend where scrap selling stops when gold dips towards $1,230 and some buying in the physical market returns. We believe this will provide support for gold on dips. With regard to physical flows: the analysis show that in Q3, jewellery
demand is slightly weaker than in Q2 (after controlling for movements in the gold price).

Therefore, we may see a lull in gold demand on approach of Q4:10. We find that gold demand for jewellery is by far the strongest in the last quarter. We expect gold demand for jewellery to pick up in August. Base on the report target price for gold remains at $1,300 in H2:10. Because of what we observe in the physical market, we foresee our target being reached in Q4:10.

We still prefer buying gold on dips.

Dip towards $1,229 as a buying opportunity

The futures market’s positioning in precious metals remains largely unchanged from last week. For gold, investor believe that the market remains well placed to support a higher gold price. COMEX gold has seen the net long non-commercial position decline to 33.2% of OI, down from 34% the previous week. Current levels are below the average level of 36% over the past 12 months, and spec length does not look overextended.

While most of investor continue to favour a move higher in gold, the metal may test lower yet again before a gold price above $1,250 becomes sustainable. It may see selling in the physical market, and resistance remains in place when gold moves above $1,250.

Gold support is at $1,244 and $1,229, resistance at $1,265 and $1,274. We view a dip towards $1,229 as a buying opportunity.

Revaluation Of RMB will help push Gold price higher

Gold price in long term is always moving up, after revaluation of RMB China sure will buy more gold because the price is lower in RMB and when demand is high so the price may jump.

In 1H2010, China and India is the biggest buyer of gold in the market and Euro and US is the biggest seller of gold. Printing more money to liquidity the market will cost high inflation and short term share market up but long term Gold will benefit most.

Gold is trading sideways

Gold is trading sideways. However, there are growing signs that support on the downside is again growing firmer, setting the scene for another break higher in the gold price.

Over the past two days, there appears to be increased buying interest in the physical market with gold around $1,230. A few weeks ago, gold above this level attracted scrap to the market. At the same time investment demand remains strong. The latest ETF data shows that holdings stand at 2,013 tonnes of gold—up almost 32 tonnes over the past week and up more than 210 tonnes since the start of May.

While market view is for gold to move higher, $1,220/$1,250 remains they preferred trading range in coming days. Market report believe the bias is for a break to the upside.

Gold is well placed for further strength

Gold continued its bull run yesterday, topping out at another record: $1,225. Renewed safe-haven gold demand was spurred by Fitch saying that the UK’s fiscal problems were “formidable” and that the UK’s sovereign credit rating was in danger if budget-deficits cuts were not swift and decisive. This fueled concerns about Europe’s debt crisis and contagion effects, as well as the risks to Eurozone economic growth. In overnight trade, there was a slight pullback, although we ascribe this to profittaking, and remain we confident that gold is well placed for further strength. I think it was best to continue to advocate buying into dips.

Gold support is at $1,229 and $1,222, resistance at $1,247 and $1,260.

The gold price likely to see it trading above $1,300 in Q3/Q4:10

Gold remains well supported above $1,200. Dips are buying opportunities. Gold support is at $1,213 and $1,205, resistance at $1,226 and $1,231. We still favour gold in euro terms relative to gold in dollar terms. The euro has crashed to $1.2110 — a four-year low to the dollar. Our target for the euro remains at $1.15. Some report believe that gold will touch record highs in dollar terms soon. The gold price likely to see it trading above $1,300 in Q3/Q4:10.

There are many macro-economic risks, as confirmed by Spain’s ratings downgrade on Friday. We look to equity markets for direction on risk appetite. The 200d MA still provides strong resistance to the S&P and Dow in the US. Both indices attempted a close above this level on Thursday/Friday — neither did. Looking at the US futures market, both indices seem headed down today.