Week ending 22nd February 2013

Gold at lowest level since May 2012. Is this the bottom of this cycle?

Short selling continued as technical support levels were broken to see Gold and Silver at their lowest levels since May 2012.

Many Managed Funds have been taking Short positions, but what is interesting is the last time the Managed Funds held this level of Short Positions (a short position can be taken when the investor expects the price to drop) in May 2012 when Gold bottomed at US$1,540, this was followed by a sustained rally to US$1,800 by October 2012.

The question is will we see a similar trend again?

This view is somewhat supported in that many of the Bullion Banks are reducing their net short positions.

Although we have seen sharp moves on the downside for Gold and Silver over the last 2 weeks, there really has not been any significant economic news that ought to have triggered such fluctuations. Most Analysts are putting the sell down to these short positions and further selling as key technical levels are broken.

The biggest sell down occurred on Wednesday in the USA when the Federal Reserve released their January meeting minutes where it emerged that some members were worrying about the commitment to buy Treasuries and Mortgage securities. Ironically this is what the Gold investors have been saying but the 'market' interpreted this to mean that the Fed may curb its monetary policy sooner than expected.

By the end of the week, James Bullard, St Louis Fed President said that the central bank will keep its monetary policy in place for a long time.

Other news was relatively low key, although there was some renewed commentary that there may be more quantitative easing in Britain in the months ahead. This in itself drove the Sterling down with its biggest one day fall for months.

This coming week will see lots of new data and news out of the Eurozone and USA, so we could see quite a bit more volatility. The Chinese market returns this week, which could see strong support at these levels.

Summary:

Precious metals at lowest levels since May/June 2012.

As in May 2012, Managed Funds hold similar short position levels with the result being a bull rally that reached US$1,800 by October 2012.

Fundamental economic conditions have not changed.

China back in the market this week.

A number of AusMint clients have been taking advantage of these lower price levels and purchased more bullion in the last few days.

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The following sample is Gold over the last 12 months ending 22nd February (Note the change after May 2012).