Gold Bulls Surrender Once Again

The price of gold has been on the slide since late October and yesterday we saw selling accelerate after the minutes from the last Federal Reserve meeting showed that the members stand ready to reduce stimulus in the coming months. Gold has been bouncing up and down like a yo-yo within a relative tight range over the past couple of weeks on the back of news and comments related to the on/off speculation about tapering.

Double whammy

But the combination yesterday of retail sales rising the most in three months, together with the first fall in the consumer price index in six months led the market to believe that the "coming months" statement could be changed to action sooner than otherwise expected. Janet Yellen, although not yet confirmed, is expected to take over the chair from Ben Bernanke no later than January 31 and the general expectation has been that no action would be seen before that time.

Low energy prices in the US are not only helping to keep inflation under control but also helping industry maintain a competitive edge. As an example of this, the average retail price for gasoline at the pump is currently hovering near the lowest since February 2011 while natural gas prices are almost 20 percent below the five-year average for this time of year.

Hedge funds and flows in exchange traded products (ETP) have both been negative so far this November with ETP holdings down by 19 tons while the net-long in gold has almost been halved during a two week period up until November 12. Against these odds, bulls are having a hard time and yesterday's break below the October low at 1,252 USD/oz triggered another round of long capitulation. So far we have found support at the now established trend-line from the lows since August at 1,240 USD/oz.

Today the pivot is located at 1,254.40 USD/oz which will provide resistance while a failure to hold the established support would bring USD 1,200/oz back into focus.

Spot gold

Weak silver
The interrelations between precious metals (gold and silver) and platinum group metals (platinum and palladium) show that silver remains the weakest of the four with palladium the being the strongest. The gold/silver ratio which reflects the cost of one ounce of gold measured in ounces of silver has reached 62.6 ounces this week, the highest since August. Palladium remains the best performer with its ratio to platinum, currently at 1.95, trading near the most expensive in more than a decade.