Thursday, December 29, 2011

Gold Hits 6-Month Low, Breaches "Lehman's Uptrend", on Euro Interbank Crisis, Forced Japanese Sales

Gold is trying to hold on at it's 6 month low and silver likewise is trying to fend off any further technical damage.  Silver is re-challenging the September low of $26, and a bounce from here is crucial. 
Sentiment is currently extremely negative so a bottom near $26 is possible.  If silver doesn't hold here, there is a possibility of silver falling all the way to strong long term support at $22-$23.  Obviously this technical damage and chart analyis should be taken with a grain of salt to account for the illiquid holiday trading volume.  

London Gold Market Report
from Adrian Ash
Thurs 29 Dec., 06:20 EST

Gold Hits 6-Month Low, Breaches "Lehman's Uptrend", on Euro Interbank Crisis,
Forced Japanese Sales

The WHOLESALE MARKET gold price fell further on Thursday in London, hitting its
lowest London Gold Fix since 8th July at $1537.50 per ounce – 19% below Sept's record
high – on what dealers called "long liquidation" and "pressure" from the Eurozone debt crisis.

New laws in Japan were also blamed for forced sales during Asian trade, with bullion dealers
obliged to report all physical transactions above ¥2 million ($25,600) to the tax authorities
starting New Year's Day.

Physical gold bullion flows in Europe are "very light – unsurprisingly for this time of year,"
says Swiss refinery and finance group MKS.
"[A] few accounts [were seen] bailing out on the break of $1570" on Wednesday, MKS
says, with "the rest of the move driven by illiquidity and forced sellers pushing themselves
out as they push [the gold price] lower."

On a closing-price basis, "Support sits at the trendline off the October 2008 low, currently at
$1543," says Russell Browne's technical analysis for Scotia Mocatta, pointing to the uptrend
in the gold price starting with the collapse of Lehman Brothers 3 years ago.

That support level is "followed by the September [2011] low around $1533," reckons

The Euro sank 1.5¢ on Wednesday after new data showed the European Central Bank's
balance-sheet swelling to €2.7 trillion last week on making the first of its "unlimited" three-
year loan offers to commercial banks.

Thursday morning the single currency fell again to a 10-year low against the Japanese Yen.

"The market reaction is slightly incomprehensible," reckons economist Jens Kramer at
Germany's NordLB in Hanover. "After that record liquidity injection it would follow that the
balance sheet would swell."

European stock markets crept higher this morning after finishing yesterday lower, but in
the banking sector "The main not a lack of liquidity, but a lack of trust," says
Commerzbank's Christoph Rieger, head of fixed-income strategy in Frankfurt.
"There are
no central bank tools that would force banks to extend credit lines among themselves."
"The interbank market remains broken," agrees Richard McGuire at Rabobank's London
office, also speaking to Bloomberg.
"The amount of peripheral government debt banks hold raises questions about counterparty

Pushing higher on its official "benchmark" level again on Thursday, the interbank lending
rate known as LIBOR is now suffering the widest gap between the lowest and highest interest

rates charged since the peak of the first financial crisis in March 2009.

After Wednesday's surprising low interest rate charged by investors to hold new short-term
Italian debt, the yield demanded on a fresh €7 billion of 10-year bonds stayed high, just two
basis points below the 7.00% level which analysts believe is "unsustainable".
"We maintain that a liquidity squeeze brought on by the ongoing debt problems in the
Eurozone would be one of the greatest threats to commodities," says Marc Ground at
Standard Bank today.
"Gold, along with the other precious metals, succumbed to the downward pressure from
concerns over Eurozone liquidity."
"Risk-off conditions in the short term are putting pressure on the gold price," says another
London dealer in a note, "but plenty of the insurance reasons to be long of gold remain in
place – and look set to remain so in January."

Silver prices today flirted with 12-month lows beneath $26.80 per ounce, as base metals fell
with agricultural commodity prices.

US crude oil held just shy of $100 per barrel as the US Navy warned Tehran it will "not
tolerate" any disruption of shipping through the Strait of Hormuz, which Iran has threatened
in retaliation at new international sanctions.

Ten-year UK government bond yields slipped again below 2.00% – the record low breached
for the first time ever last week.

Adrian Ash

Gold price chart, no delay | Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and head of editorial at
the UK's leading financial advisory for private investors, Adrian Ash is head of research at
BullionVault – winner of the Queen's Award for Enterprise Innovation, 2009 and now backed
by the World Gold Council market-development and research body – where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

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