Gold Gains But Remains Fundamentally Weak

As markets reel from the Italian elections, traders run for the hills, pushing the US dollar and the Japanese yen skywards. Once again gold has been seen as a safe haven. Gold is trading on the upside at 1592.50 adding $6.00 this morning. Gold has been unable to break the 1600 price level. This morning silver has diverged from gold losing 34 points to trade at 29.013.

Yesterday gold traded positively on COMEX, after last week’s sell-off and scored its biggest gain of the month, on reports of possible technical bottom formation in prices around $1,520-$1,530 levels.

Uncertainty over the Italian election outcome dragged the euro down by over 100 points yesterday off its high of 1.3389 to trade this morning at 1.3051 on concern that an unclear outcome could hamper the country’s effort to implement economic reforms.

Gold gained for a fourth day, poised for the longest rally in a month, on signs of increased demand in China and as political turmoil in Italy after an election spurred haven demand. Bullion’s discount to platinum narrowed. The metal is still 4 percent lower this month after some Federal Reserve policy makers advocated more flexibility in stimulus.

Daily volumes on the Shanghai Gold Exchange have been more than double the average in 2012 since Feb. 18, when it reached a record 22,024 kilograms, according to exchange data. Bullion priced in euros climbed to a one-week high, and one ounce of platinum bought as few as 1.0024 ounces of gold yesterday, the least since Feb. 1.

Gold prices traded higher on Monday after reports by the IMF showing that Russia and Kazakhstan have expanded their gold reserves for the fourth straight month in January, aided prices.

China’s gold output increased by 11.66% to 403 tons in 2012, as per the country’s Ministry of Industry and Information Technology report. China’s gold consumption rose 9.35% to 832.18 tons last year, as per the China Gold Association. The ICE dollar index, a measure of the greenback against six other major currencies rose to 81.766.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,272.85 tons, as on Feb 25. Silver holdings of ishares silver trust, the largest ETF backed by the metal, stood at 10,602.76 tons, as on Feb 22.

This week Fed Chairman Ben Bernanke’s speech and a flurry of economic data from the major countries also contributed to a more cautious attitude by investors as the month draws to an end. A major focus will be US lawmakers and the “sequestered” budget cuts, which will go into effect automatically on March 1, 2013 after being extended from the Jan 1, 2013 Fiscal Cliff deadline. President Obama is expected to push lawmakers to reach some solution, but lawmakers seem to be unable to find any negotiations, neither party has set down a plan. A vote has been scheduled for Thursday with no bill or budget on the table.