March was very cruel to gold bugs. But they think the metal will now rebound.
Gold measured by the CME active contract floor-close was down 6.5% or $116.20, measured from Feb. 28. The NYSE Arca Gold Bugs Index was down 13.8%. (Measuring from Feb. 28 represents March better. Leap Year Day, Feb. 29, saw a brutal sell off, smashing a promising rally and establishing the new month’s character.)
The last month of a quarter seems to be a dangerous time to own gold instruments. Last December was gruesome too, giving gold bugs a notably unmerry Christmas.
But in January, gold rebounded. Could another new-quarter reversal be possible?
The latest of gold’s two decent attempts to rally in March peaked last Monday. Although gold then fell back, over the whole week gold gained 0.6%, and further comfort to the bulls was offered by gold’s starting to rise mid-morning in New York on Thursday and adding $17 on Friday — when the HUI closed up 1.09%.
And there’s possibly bullish news out of India, by far the largest importer of gold. (China is a rival to India in consumption, but it mines the bulk of the gold it needs: India mines almost none).
The Indian government doubled import duties on the yellow metal on March 17. The huge Indian gold fabricating and retailing trade responded by going on strike! Reports from bullion dealers confirm that Indian imports subsequently have been very light, despite the low gold price.
But on Friday evening, HSBC gold analyst James Steel came up with something of a scoop: He reported that the strike is over. Subsequent newswire stories appear to confirm this.
There are differing opinions as to how much the increase in the gold duty — to just over 4% — will impact longer-term Indian demand. But in the short run, a substantial increase in imports after the drought of the last two weeks seems likely.
Gold bugs see reason for optimism from another angle too. CME gold open interest (the number of gold contracts outstanding, reflecting total public participation) plunged far more than gold in this period — down 15.2% to Thursday’s close (Friday’s will not be published until Monday morning).
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Gold prices rose on Monday, firming on technical buying and then seesawing around $1,680 an ounce, buoyed by technical factors and gains in oil and equity markets.
Gold also drew support as the euro retraced early losses after falling to one-month lows against the dollar on weak European manufacturing data.
Spot gold was up 0.7 percent at $1,679.09 an ounce at 1:18 EDT (1718 GMT), while U.S. gold futures for April delivery were up $9.20 an ounce at $1,681.10.
The precious metal posted a 6.6 percent rise in the first quarter after Federal Reserve comments reassured investors that U.S. interest rates would remain low for an extended period, keeping the opportunity cost of holding gold low.
Signs of improvement in the U.S. economy have clouded the picture for gold, as a healthier recovery could make it less likely that the Federal Reserve will try to juice the economy with another round of government bond buying, or quantitative easing.
"The wider macro environment is generally improving ... so I think that's creating some headwinds, and also the European banking crisis settled down, so there's less need for safe haven of gold at this point," Standard Chartered analyst Daniel Smith said.
"But we think that the downside is actually quite limited from here," he added. "We think that actually gold will tend to rally in the months ahead on the back of a wider improvement in liquidity which we're seeing across the macrospace."
Data released on Monday showed the pace of growth in the U.S. manufacturing sector picked up a tad in March, although U.S. construction spending in February recorded its largest drop in seven months.
The dollar index surrendered early gains after the reports, which boosted gold. Dollar weakness makes assets priced in the U.S. unit cheaper for buyers using other currencies.
U.S. and European stock markets rose on Monday, meanwhile, although oil prices slipped. .EU <O/R>
MONEY MANAGERS LIFT BULLISH BETS
U.S. Commodity Futures Trading Commission figures showed on Friday that money managers, including hedge funds and other large speculators, raised their bullish bets in gold for the first time in four weeks last week.
Speculators in silver also cut bullish exposure, reducing net length by 3,284 lots to 17,031 contracts - the lowest level since the week of January 29, when they were long on 16,034 lots.
Jewelers in major gold consumer India remained on strike on Monday for a 17th day after the finance minister proposed to double the import duty on gold, an excise duty on unbranded jewelry and a tax on transactions worth more than 200,000 rupees.
"A recent pull-back in Indian gold demand has forced prices lower over recent weeks, following the Indian government's decision to double the duty payable on gold imports to 4 per cent and to impose an additional 0.3 per cent tax on most gold jewelry," National Australia Bank said in a note.
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The Economic Times
Gold prices inched up on Monday in the first trading day of the second quarter, waiting for fresh cues from the currency market as investors digest data from China and the United States as well as developments in the euro zone.
The dollar index hovered above a near one-month low hit last Friday after the euro rallied on hopes that Spain could stick to an austerity plan.
Gold has largely been taking its direction from the currency market in recent weeks in an otherwise listless range play.
"There is no fresh topic in the gold market these days," said a trader at a large bullion house based in Tokyo.
"In the past few months people had focused on the debt crisis in Europe, now that worry has calmed down despite some remaining uncertainties and money is flowing back to equities."
Gold moved towards $1,700 last week after the U.S. Federal Reserve Chairman Ben Bernanke hinted of the possibility of more pro-growth measures, but momentum faded quickly and prices dipped to below $1,650.
Spot gold edged up 0.1 percent to $1,670.30 an ounce by 0645 GMT, after posting a 6.6-percent rise in the first quarter. Although prices fell 1.6 percent in March, a second straight month in the red.
COMEX June contract was flat at $1,671.90 an ounce in thin trading.
China's financial markets are closed for a public holiday and will reopen on Thursday.
Bullion prices may end the rebound around a resistance point at $1,677 an ounce and retrace towards $1,645 during the day, said Reuters market analyst Wang Tao.
Spot silver led gains in the precious metals complex, up 1.2 percent to $32.58 an ounce, building on a 16-percent gain in the first quarter.
Traders said gold could stay in a range between $1,640 and $1,680 in the short term, in the absence of any major news.
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