Gold futures are within dollars of hitting a new all-time high as silver surges near the $30 level, but look at this…
Gold’s action today is very positive
September 5 (King World News) – Alasdair Macleod: One of my favourite indicators is gold’s performance ahead of London’s morning fix, when overnight demand (from Asia mostly) is cleared in London. Put simply, if the price rises ahead of the fix, there has been net demand. If not, the price declines to a point where buyers might come in.
Once overnight demand is cleared, the price can fall later in the day, driven by either profit- taking or the shorts marking prices down in an attempt to trigger selling. On 3 September, gold rallied $15 ahead of the fix before falling back nearly $30. On 4 September, it fell $25 ahead of the fix, indicating little or no overnight net demand being unwound, before rallying strongly over the course of the day. Perhaps the London offices of Chinese banks, or others acting for central banks cleaned out the market on a markdown that was too ambitious…
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This morning, there was no disguising a sudden shortage, probably exacerbated by the return of overnight Asian demand, with the price up $21 ahead of the fix.
Another point worth making is that the yuan has been strong against the dollar rising 3% since July 1, when gold was $2332, so in yuan it hasn’t risen nearly as much as in dollars. Furthermore, the Peoples Bank of China has reduced interest rates making deposits less attractive, which is bound to have encouraged households to add to their gold saving accounts offered by their banks.
In short, it looks like the brief consolidation of earlier rises in the gold price has led to an underlying bullion shortage putting the squeeze on paper short positions. This is particularly evident in today’s price performance.
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