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Spotgold Analysis 3 Feb 2010

Spotgold Chart 3 Feb 2010

Last week’s series of candles finally delivered for spotgold prices which reversed in dramatic fashion on Monday following stellar ISM data in the US which prompted a rebound in equities with a consequent fall in the US dollar.  Both Monday and Tuesday’s candles saw the gold trading sessions close as wide spread up bars which attempted to breach all three moving averages, failing only marginally on yesterday’s closing price.  The key level for any longer term move higher remains the $1150 per ounce price point which has proved to be a turning point in the past and for any sustained move higher this level needs to be breached by at least 2% in order to confirm that this current bull move will be maintained.  However, given the recent pullback in early January, following a similar rally it will be no surprise to see this price action repeated once again as we enter a potential period of sideways consolidation in this region.  Longer term we can expect a breakout from this level and once achieved should see a re-test of the high of early December at $1225 per ounce.

From a fundamental perspective yesterday’s comments from Aram Shishmanian, CEO of the World Gold Council, that  “The sustained break above the key $1000/oz level came in early September, with record highs being tested repeatedly over the remainder of 2009. The current trading range should not be regarded as an overnight spike, but the result of a measured rise, supported by favourable and robust gold fundamentals.” “Robust demand should also be viewed in the context of constrained supply. Significant drivers of the gold price were also apparent on the supply side in 2009. Traditionally, central banks have been suppliers of gold, but this is starting to change. “Over the course of 2009, the market saw a structural shift in central bank reserve management as western central banks slowed gold sales and developing nations added to their gold reserves. Other factors contributing on the supply side were sizeable pockets of de-hedging activity, although most major producer hedge books have now been unwound, and a reduction in the supply of recycled gold to market from the extremely high levels seen in the first quarter of 2009.”    The World Gold Council also confirmed that investor flows, particularly from the West, have been a key support during the present credit crisis as investors have sought to diversify as well as protect their wealth against market shocks.  Moreover, this demand looks set to remain intact even as the global economy has shown signs of recovery.

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