Gold's Showing That Same Old Pattern

Gold is set up to finish the week at a low not seen in more than six weeks.

As we know, gold has been strongly correlated to the euro in recent years, so as the euro has weakened, today --thanks to weak data -- gold has also struggled to keep up: falling to as low as $1,622.

Status On Hold
Data releases from the U.S. and China seem to have put the idea into investors’ heads that the global economic recovery is a given. U.S. jobless claims were lower than expected, while manufacturing in China (according to the government) improved in January. This improved data is putting gold’s safe-haven status on the back-foot for many.

We continue to point toward the devaluation of currencies, expanding balance sheets and hoarding of gold by central banks as key fundamentals to further drive the price of gold.

Directionless
Needless to say, however, gold investment is being tested at the moment, chopping and changing without managing to settle on a particular direction.

Markets are now awaiting word from the G20, namely anything that gives some indication of feeling about the escalating currency wars.

Platinum and palladium both continue to outperform gold this week, the latter reaching highs not seen since December 2001: thanks to supply concerns and improved data from China.

Some Divesting
It seems gold has lost some popularity amongst the big-guns this week. George Soros and Louis Moore Bacon both reported yesterday that they had reduced stakes in exchange-traded products backed by gold. Also yesterday, a Bloomberg survey found that respondents are at their least bullish since December 2011, with the majority expecting prices to fall further.

Typical Break Out
Despite this drawn out consolidation period, many analysts believe we are poised for a breakout on the upside for gold. Gold's 12-year bull run has been characterised by consolidation periods and sharp run ups. Just before the run-ups we see one currency break out of the consolidation before the others, in the present case it is the Yen which has seen some record highs in the gold price recently.

Many analysts expect to see gold breach $1,600 next week. However the return of Chinese buyers may provide some support to the gold price.

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