Gold Prices – Blip, Dip or Flip

After two weeks of softness in gold prices, weak players with long positions are out. Asian buying support seen. Gold prices stable for four days.

European liquidity crisis behind gold 'dumping' by Euro-banks? 2ndlook thinks its gold from deposed Arab leaders (Tunisia, Egypt & Libya) which has found its way into markets. | Cartoonist Mike Luckovich on Nov 29 2011; source & courtesy - caglecartoons.com | Click for larger source image.

Three sides of the coin

The slide in gold prices has brought out Gold-Bust supporters and the Gold-Boom buyers in full force.

Is this US$300 drop in gold prices in the two weeks of December 2011,

– Just a blip on the bull run in gold prices?

– Or is it a medium term dip in gold prices?

– Or is it a beginning of the end for the gold bubble?

All three sides marshall enough ‘facts’ and ‘data’ to sound convincing.

What is not told

What the mainstream media is not telling you, is being told – only on 2ndlook blogs – How Arab gold from Egypt, Tunisia and Libya that may have been dumped by European banks in the market.

As usual the market has the last laugh.

Gold for delivery in February (GC2G +0.51%) rose $8.60, or 0.5%, to $1,626.00 an ounce on the Comex division of the New York Mercantile Exchange during Asian trading hours.

The rise put the metal on track for a second session of gains, after trading up 1.3% in Tuesday’s North American session.

Gold has been pressured in recent months, amid Europe’s deepening sovereign-debt crisis.

Year-end selling by funds and tight liquidity in European interbank money markets have also contributed to recent price falls.

Anne-Laure Tremblay, precious metals analyst at BNP Paribas, said increases in liquidity by central banks should support gold prices in 2012 and possible rises in inflation expectations.

“Gold should also be boosted by strong physical demand, notably in Asia and Europe,” Tremblay said.

However, she added that “with high uncertainty likely to remain a major feature of the markets, gold could be vulnerable to further episodes of price correction.”

BNP Paribas was forecasting gold to average $1,775 an ounce in 2012 and $2,150 an ounce in 2013. (via Gold futures extend gains in Asian trading – Metals Stocks – MarketWatch).

Is the US Treasury or the US Federal Reserve buying gold? This Chinese cartoonist seems to suggest that. | Cartoonist Luojie, China Daily, China on 9/28/2010 12:00:00 AM; Source & courtesy - caglecartoons.com | Click for larger source image.

Go East, young man

And here is one more take on the gold prices which seems to suggest that with Asian (read as India+China) demand strong as ever, this dip in prices is just a good buying opportunity.

2ndlook will go with that.

Paradoxically, optimism is actually bolstered by the widespread suspicion the slide was triggered by central bank selling — a once-radical idea now so generally accepted that the bullion bank UBS, usually very circumspect about official-sector activity, felt able to say on Friday that “larger moves were also likely taking place behind the scenes, judging from the considerable market chatter about official liquidation.”

The reasoning here: Once the abnormal, politically motivated selling ceases, gold will revert to a higher equilibrium.

But the most concrete reason for optimism emerged on Friday: It became apparent that the lows of Thursday had uncovered large Eastern physical demand.

UBS commented that “the physical market has now responded: Combined turnover on the [Shanghai Gold Exchange] this week has been consistently strong and is about 53% higher than the previous week’s, while demand from India is shaping up to be the strongest weekly offtake since early October.”

Over at LeMetropoleCafe, a correspondent reported very high local premiums for gold in the key gold-buying markets of China and India on Friday, suggesting strong local demand, and headlined: “Year-end gold menu: Bear Curry or Bear Chow Mein?” (via The East Is Gold? – Peter Brimelow – MarketWatch).

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