Gold Sentiment Poor Due to Range Bound Trade and Banks Bearish Predictions

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Gold climbed $4.50 or 0.27% yesterday closing at $1,677.50/oz. Silver closed up 0.13% at $31.83.

Gold is little changed today in pound, euro and dollar terms after the Bank of England and the ECB kept interest rates at record low levels. Ultra loose monetary policies continue.

xau jpy 7 feb 2013
Gold in Japanese Yen, 4 Day – (Bloomberg)

The ECB kept interest rates at 0.75% and the BOE kept interest rates at 0.5% the lowest level since 1694. The BOE pledged to maintain their ‘stimulus’ or money printing or debt monetisation programmes.

This morning the Japanese yen fell to new record lows against gold on the TOCOM at over 157 million yen per ounce.

Ultra loose monetary policies are set to continue which is bullish for the precious metals.

Mario Draghi’s news conference begins at 1330 GMT and the ECB President could set the course for the single currency.  If Draghi’s speech warns about the recent rise in the euro then the euro may fall against the dollar and gold.

Gold's range bound trading between $1,650/oz and $1,700/oz since December continues.

gold usd 7 feb 2013
Gold in USD, 2 Year – (Bloomberg)

Physical gold volumes have been quite low in recent days with very few new buyers coming into the market. More clients have been selling than buying in recent days. But the more aware and risk averse money continues to add to their allocations.

The mix is quite unusual as normally there is a clear bias towards clients selling or buying. On recent years, during gold’s bull market the bias has been towards buying.

Recent technical action has been poor and the short term trend is down and this allied to perceptions that the global economic situation has improved slightly is leading to the preponderance of sellers.

Sellers have also be emboldened by recent bold pronouncements of the end of gold’s bull market – by many of the same banks who never predicted the bull market or advised their clients to own gold in the first place.

Many of the banks, now predicting gold’s bull market will end in 2013, never predicted gold’s bull market in the first place. Most were bearish on gold in the early to mid years of the bull market and most only became bullish quiet recently.

Very few have been consistent and very few have been bullish on gold in the long term.

It is also worth noting that most of them do not understand gold and continue to see it as a trade.

Many of these banks primary focus is short term profit, often trading profits, and therefore they do not understand the long term, passive diversification benefits of gold in a portfolio or as financial insurance.

It is also not profitable for them to advise a buy and hold diversification strategy as more prudent advisers have been advising in recent years.

While sentiment towards gold remains poor after recent weakness, the smart money is focused on the fundamentals and is positioning itself for higher gold prices in the medium term. Soros, Gross, Faber, Rogers, Paulson and other respected investors who predicted the crisis have large allocations which they continue to hold.

silver usd 7 feb 2013
Silver in USD, 3 Year – (Bloomberg)

Investors need to be patient, fade out the day to day noise from banks and hedge funds and focus on gold’s value rather than its price movements – particularly in the short term.

It remains important to focus on the long term diversification benefits of having an allocation to gold, silver, platinum and palladium.

News

Gold edges up before ECB meets, PGMs near 17-mth highs - Reuters

Gold Rises in Asia, Near-Term Outlook Weak; Precious Metals Lower – The Wall Street Journal

China's 2012 gold output up 12% - Paper - Reuters

Gold vending machine in Florida may be first of many – The Palm Beach Post

Source: Gold Core

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