Bulls versus bears in gold market, notes Sharps Pixley

Precious metals dealer Sharps Pixley believes that investors in gold are being torn between the view that central bank actions are bullish for the metal, versus those who see poor near term support for the price.

Central banks’ actions bullish for gold

The Fed’s vice chairman Yellen recently said that the Fed should continue with bond purchases and did not see any strong evidences of excessive risk-building.

The Fed’s chairman Bernanke also believed that raising interest rates too soon would affect longer-term economic recovery and lower the real returns to investors.

Iwata, the Bank of Japan nominee, intends to push inflation rate as quickly as possible to two percent, buy bonds with maturity longer than three years, and possibly start bond purchases this year.

The recent Euro/Dollar weaknesses due to the renewed concerns of the European debt problems will likely lead to more stimulus measures from the ECB.

The Chinese government pledged to maintain a GDP growth rate of 7.5 percent in 2013, which should support gold’s demand. While the central bank’s policies are supportive for gold, the latest QE program and the rising risk appetite have led to a rise of the S&P 500 index of 8.38% this year compared to a fall in the gold futures of 6.02%.

Short-term investment demand bearish for gold

While hedge funds have failed to buy gold recently and have maintained elevated short positions similar to the level in 2005, gold-back ETP holdings also fell to a five-month low of 2,500 tons on 4 March according to Bloomberg.

However, the physical demand for gold in China and India has responded to the lower level of gold prices. In the annual budget in India, the government did not raise import duties further, helping gold’s future demand from the world’s largest gold consumer.

 

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