Gold ended the week Jan. 19-23 on a soft note, after late selling took prices to a close of US$407.80 per oz. However, with the U.S. dollar firming further, supported by comments from U.S. Treasury Secretary John Snow that Washington is considering a large new bond issue of TIPS (Treasury Inflation Protected Securities), gold has continued to trade softly.
At the start of the week of Jan. 26, gold traded largely around US$406 per oz., and prices ended near their lows at US$404. The poor close has encouraged further selling, and at presstime, prices were slipping below US$404, eyeing support at the psychological US$400-per-oz. level, with the key technical level of US$390 also within view.
Thus far, reports are that physical buying interest has not improved at current levels, and further price declines are expected. Of course the direction of the euro/U.S. dollar exchange rate will be a crucial determinant of whether weak speculative longs decide to exit. On that front, there were reports on Jan. 26 that the G7 has agreed to target Asian currencies as being undervalued, though whether such a policy is enforceable is another matter. Meanwhile, Barclays continues to emphasize a high unstable market with near-term prospects for accelerated U.S. dollar gains against the euro targeting 1.2445 and 1.2335.
In the latest release of quarterly reports,
Weak longs continue to overhang the gold market. Despite the large fall of 73.5 tonnes in the Comex net long futures and option position, this still remains at a sizable 355.4 tonnes. Both the technical picture and the Feb. 6 G7 meeting suggest that the euro/dollar will be volatile but with a downwards bias. We expect gold to follow a similar pattern and continue to highlight US$400 and US$390 per oz. as the key psychological and technical levels, respectively.
Japanese imports of gold rose to 7,778 kg in December 2003, a stunning rise of 264.8%, year over year, according to data released by the Ministry of Finance. However, for 2003 as a whole, imports were down 41.7% to 49,423 kg.
The Indian commerce department is set to exclude the export of diamonds, gold bars, silver bars and plain gold jewelry from a scheme which offers 10% duty-free import entitlement for trading houses and other status holders, according to a report in the Business Standard. The benefits are granted on the basis of an incremental increase in export turnover. The exports are often sent to various destinations, especially the United Arab Emirate. Later, the same goods are imported to India and again re-exported. Each cycle gives a 10% duty-free entitlement benefit. The commerce department was alerted by the Gem & Jewellery Export Promotion Council about the circular trading, which seeks to exploit the new scheme. A steep rise in bogus transactions has led to an unprecedented spurt in the export and re-import of gold medallions and jewelry over the past two or three months, finance ministry sources say.
Trading in silver was modest at the end of the Jan. 19-23 report period, with prices hovering either side of US$6.30 per oz.
Silver has found good support as it has approached US$6.10 per oz., and this suggests that some investors have a longer-term view. This is also reflected in the latest Comex positions report, which shows a reduction of only a relatively modest 5,917 contracts to 52,403 contracts (combined futures and options).
Silver does appear to have reasonable support at lower levels but a marked fall in gold, below US$400 for example, would be expected to weigh on silver prices also.
Platinum continues its recent robust but unspectacular performance, with prices holding above US$850 per oz and testing toward the 2004 high of US$868 per oz. but without breaking above that level. This is reflected in a modest increase of just 146 contracts on Comex (to 3,936 contracts). However, it seems only a matter of time before we see new highs in platinum. The end of the Chinese New Year holidays may provide that impetus with reports of inventory drawdown in the run-up to the lunar holidays.
— The opinions presented are the authors’ and do not necessarily represent those of the Barclays group. For access to all of Barclays’ economic, foreign-exchange and fixed-income research, go to the web site at barclayscapital.com. Queries may be submitted to the authors at kevin.norrish@barcap.com and ingrid.sternby@barcap.com
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