Gold: lack of interest

The Greek debt conundrum and active official sector purchases coupled with decent seasonal buying in China pushed the market past USD 1,300/oz in late January. However, having corrected form highs above USD 1,300/oz, gold continues to struggle with the upside. Matters are unlikely to improve with the physical market taking a breather as China heads for the Lunar New year holiday break from Wednesday.

On the investor side, some profit taking from this year’s highs highs had resulted in receding interest as players reduce heir ETF and futures gold longs. The SPDR Gold Trust alone is up 7.7% on the year and over 1% higher in February. A near 2% sell off earlier today will see a further reduction in spec longs when data becomes available.

The market is still up around 2% on the year, but it clearly failed to establish a sustained robust uptrend. The earlier 2015 safe haven buying was followed by a quickly waning investor appetite for bullion and some profit taking. All the above is overshadowed by the looming US monetary policy tightening. As ever, the timing is far from certain, but it is closer than it ever was.

The Fed reiterated in January it will be ‘patient’ with rate hikes. However, there is no doubt the US central bank will be well ready to hike rates this year, now that the quantitative easing is over and macro numbers continue to point at a moderate recovery and jobs growth. The FX market is pricing a rate increase in early summer, which would limit investor appetite for non-interest bearing assets like gold. Greece will remain in focus, but safe haven flows will be limited. Instead, bullion will become increasingly sensitive to US macro numbers as rate expectations start to swing wildly. In this respect, minutes form the latest Fed meeting will be in particular focus tomorrow night.

As for prices, the previously bullish technicals are now broken. The key support is back near USD 1,180/oz with little chance for a sustained price rally in the very near future.