HardAssetsInvestor

Written by Sumit Roy  |

June 05, 2012

Gold Spikes Most In 3 Years: Bullish Signal Or Dead-Cat Bounce?

Details

We offer our latest analysis on the precious metals market.

 

Gold prices rebounded sharply over the past week, but as many market observers are well aware, the entirety of that gain took place in a single session. On Friday, gold vaulted higher by $64/oz, or 4.1 percent — the largest percentage gain in over three years, according to data from Reuters.

The rally came on the heels of an extremely disappointing employment report in the U.S., which showed that nonfarm payrolls in the country rose by only 69K in May, well below the anticipated 150K.

"Friday's data pushed the [focus] straight back to the Fed, and talk of a possible QE3 is increasing now," said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai.

Some are even looking for joint action between global central banks amid economic woes in the U.S. and China, as well as the sovereign debt crisis in Europe.

"People are speculating that there will be some form of program coordinated by central banks, which is ultimately inflationary and gold catches a bid," said Jeffrey Sherman, commodities portfolio manager at asset manager DoubleLine Capital.

Since Friday, however, gold hasn't moved much. That is unsurprising, and prices may continue to hover in place as the gains are digested.

Clearly, gold has attracted quite of bit of interest from investors, but whether it has truly regained its safe-haven status remains to be seen.

Currently, the gold trade will be tied to the probability of monetary easing by central banks, particularly quantitative easing, and particularly from the Federal Reserve.

Thus, the June 20 Federal Reserve monetary policy decision will be watched closely for hints of forthcoming stimulus. Just days before the Fed meeting are the Greek parliamentary elections on June 17 — the outcome of which will play an important part in determining whether the country remains in the eurozone.

At least in the short term, expect gold prices to remain supported as investors buy the yellow metal to hedge against a potential Greek exit from the eurozone, and in hopes of the potential monetary easing that follows such a scenario.

Taking a look at the technicals, gold faces the next level of resistance near $1675, a break of which opens the door to much higher values near $1800.


GOLD

Silver didn't attract nearly the interest that gold did on Friday, and the gray metal remains trapped between $27 and $29.

 

SILVER

 

PLATINUM

 

PALLADIUM

 

 

ETF Holdings

Gold ETF holdings rose fractionally to 76.4 million troy ounces last week, a gain of 0.06 percent. Silver holdings fell by 2 million troy ounces, or 0.36 percent, to last stand at 565.6 million. Platinum holdings fell fractionally to 1.32 million, a decrease of 0.11 percent. Palladium holdings fell by 8K, or 0.42 percent, to 1.97 million.

 

 

 

 

 

 

Key Ratios

The gold/silver ratio was rose to 56.9; the gold/platinum rose to 1.12; the gold/palladium ratio was flat at 2.6; and the platinum/palladium was unchanged at 2.34.

 

 

 

 

 

 

Currencies

The U.S. Dollar Index fell slightly to 82.8, while the EUR/USD exchange rate rose to 1.2455.

 

 

 

 

 

Sovereign Debt

German and United States 10-year bond yields plunged to fresh record lows before bouncing just slightly. German yields were last trading at 1.21 percent, while the U.S. 10-year yield was at 1.55 percent.

Against the German benchmark, yield spreads on PIIGS country bonds were mixed. Portuguese, Italian, Irish, Greek and Spanish yield spreads were last trading at 10.77 percent, 4.44 percent, 6.19 percent, 29.4 percent and 5.1 percent, respectively.

The ECB did not purchase any sovereign bonds last week, but all eyes will be on the central bank to see if buying resumes.

 

 

 

 

 

 

 

 

 

 

 

Inflation

The eurozone consumer price index grew by 2.4 percent year-over-year in May, down from April’s 2.6 percent rate.