Buying Opportunity?

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0 Comments|February 10, 2006

Gold had already dusted itself off and was getting back on its feet Thursday after suffering its biggest drop in eight years on Tuesday, February 7.

Source: The Gold Report 06/06/2005(www.theaureport.com) -->


Gold had already dusted itself off and was getting back on its feet Thursday after suffering its biggest drop in eight years on Tuesday, February 7. Physical buying, particularly from the jewelry industry, helped steady the precious metal. What triggered the precipitous drop remains a subject of speculation among traders, analysts and other industry pundits.

"I was surprised by the magnitude of the drop," Gabriel Flores told Bloomberg on Tuesday. Flores, an analyst with Interinvest in Montreal, said that after the short-term to mid-term "you'll have a push up in gold prices" because the geopolitical issues that have lifted gold futures haven't abated.

However, on Thursday, David Gornall told Bloomberg that the latest Greenspan speech "crushed sentiment" in the gold market. Gornall, head of foreign exchange and bullion at Natexis Commodity Markets Ltd. in London told Bloomberg that the metal may fall as low as $535 within the next two or three weeks.

"Some of the reasons why people bought gold don't hold true anymore," Gornall told Bloomberg. "Rising energy costs, inflation, the double deficit in the U.S. and geopolitical tension. None of them seem to be much of a problem."

Adrian Day, author of the Global Analyst, had predicted a correction just one day before the $21-plunge. Still, the next day he issued a bulletin saying he didn't expect it to drop so fast and so much. As to what triggered the fall, "It's difficult to say," Day told readers. "Without any compelling trigger - oil was down again, but the rest of the world looks much the same as the day before - we may yet learn of a major seller, another central bank perhaps," Day said.

According to Day, gold was set for a correction. "As often happens in overextended markets, when the price starts to decline, it can fall rapidly, as stops are hit and recent buyers panic while others lock in remaining profits," said Day. "This is normal market action and the selling trigger can sometimes be minor or unimportant."

Whatever the reason for the correction, it posed a buying opportunity, according to some. "Investors don't want to miss the buying opportunity," Song Won Deog, general manager of Woori Futures Co. told Bloomberg.

According to a Reuters report, some physical buying emerged with a drop in prices as jewelers purchased the metal to refuel their inventories, which had sharply fallen because of cautious buying in the previous weeks.

What lies ahead? Experts suggested that the long-term outlook remains strong, but warned not to count on a rapid rebound.

"I still think we are going to see higher levels at the end of the year or maybe in the next few months, but at the moment we are seeing some profit-taking and stop-loss selling," Jeremy East, global head of precious metals at Commerzbank told Reuters on February 8.

Day said he expects the correction to be brief and shallow. "We should not be surprised at some follow-through. Gold is still trading above its 50-day moving average, which would give it another $10-$15 downside to the low $530s. That seems to be the downside risk to me, and even that may not be reached."


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