'Technicals Dominate' Gold Prices But 'Algos Disappointed' as Trading Stays 'Dull'

LONDON (Scrap Monster) : Gold prices gave back a $5 rally Wednesday lunchtime in London, trading back at $1282 per ounce as European stock markets reversed earlier losses following strong Eurozone manufacturing data.

 China's manufacturing sector contracted for the fourth month running on the HSBC PMI index.

Gold prices are being "undermined by improving macro data and reports that China imports tied to financing demand," reckons Robin Bhar, analyst at Societe Generale, pointing to last week's comments on China's gold trade financing from market-development organization the World Gold Council.

"The only real support for gold prices," says Germany's Commerzbank in a note, "is coming from any tension that still exists in the Ukraine."

"In line with our expectations," says Russian investment bank VTB's gold-dealing desk, "the market has reached early April's lows already."

Gold prices "could still consolidate a little in dull trading this week," it adds, "unless selling intensifies on a sustained close below $1278/80 per ounce."

Also looking at gold price charts, "Technicals dominate direction," says the trading desk note from Standard Bank's commodities team – currently being acquired by China's ICBC – "and again technicals indicating trend is to the downside.

"With a decisive break under 1278," says Standard, gold prices "could see $1255/1240 next."

Tuesday's action questioned the importance of that level, however, "to the chagrin of the algos [computer programs] and day traders," says brokerage Marex Spectron's London team.

"The follow through was fairly non-existent and the market held reasonably well and closed back in the 1280s."

Looking at the US gold derivatives market, "technical trading" ahead of tomorrow's expiry of Comex options for May "[is] keeping gold from a vigorous rally," says George Gero at RBC Wealth Management in New York.

"Tomorrow night we may see beginnings of volatile up and down on Friday."

Meantime in China, the Shanghai Gold Exchange's most active contract ended Wednesday some 75¢ per ounce above equivalent London quotes, marking only the 6th such premium to international benchmarks in the last 9 weeks.

London gold borrowing costs today edged back, slipping for the second day running from last Thursday's new 8-month highs.

Courtesy: www.bullionvault.com