Gold prices dropped more than 7% last week – the biggest weekly loss since September. Liquidity squeezed speculators and banks have been closing long positions and selling Gold this past week but global physical demand remains robust.
Bullion buying in much of Asia has picked up. Reuters reports that there has been a jump in buying in most Asian countries and that demand for gold in India, still the world's top buyer, rose slightly for the first time in almost a week on Friday.
Bullion dealers in India told Reuters that the price drop “enthused buyers.”
"We saw huge physical demand from Thailand and Indonesia," a Singapore based dealer told Reuters. Gold bar premiums were steady at $1.00 an ounce over spot prices in Singapore. Prices may edge up this week as supply reduces around Christmas holidays according to a dealer.
Opinion has been divided about the outlook for gold. Most analysts of the gold market remain positive about the outlook for gold in the medium and long term. Some are cautiously suggesting that the worst of the sell off may be over as gold looks very oversold technically and the fundamentals remain sound.
Bearish sentiment in the gold market is very high which may be indicative of a market bottom.
Some economists continue to confuse gold’s frequent short term correlation with risk assets with its proven hedging and safe haven properties in the long term.
Nouriel Roubini has declined to elaborate and clarify regarding his suggestions that gold is a bubble. Roubini Global Economics has said that the breach of gold’s 200 day moving average is “signaling that prices may drop to US $1400/oz.”
Denis Gartman whose pronouncements of the death of the Gold bull market were widely publicized this week has said that he may buy gold soon if it falls sharply again. Gartman said that gold was poised to enter a bear market and would hit $1,450/oz before it breached $1,800/oz.
A more nuanced view is that of UBS’ Chief Investment Officer who said that “as we enter 2012”, gold no longer retains “a safe haven status.”
However, “investment in bullion makes sense as a protection against currency debasement and as negative real interest rates reduce the opportunity cost of owning gold”, UBS CIO Alexander Friedman of UBS said.
“Investors should not, however, buy gold expecting it to act as a safe haven during severe, liquidity-driven market sell- offs,” Friedman said.
Last week’s washout in gold is “overdone” according to respected UBS precious metals analyst Edel Tully. Edel said that “we think gold at these levels” presents a “buying opportunity.”
Buyers with a long term view might be prudent to dollar cost average into positions in the coming days and weeks.
The old adage to never “catch a falling knife” is worth remembering and it is still too early to say that this correction is over. A higher weekly close next week and weekly or monthly close above the 200 day moving average at $1,620.60/oz would likely see more speculative players come into the market again leading to gold regaining its footing and the technicals again aligning with the fundamentals.
Source: goldcore
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