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ROSS NORMAN - Bloodbath in the GOLD Markets - Key Levels Collapse

After gold slipped gently below the important technical level of $1540 this afternoon, it appeared that short sellers and heavy long liquidations had done their worst - but more was to come. $1540 was the market low in 2012, a level it tested and held in October 2011 and May 2012.

Gold investors have been noticeably absent and are perhaps now fully desensitized to bad news as the lacklustre price action in the wake of Cyprus, North Korea and weakening US data proved.

Shorting gold will remain a popular sport while there is money in it and there has been a noticeable absence of bounce in the price after each sell-off, prompting repeat attacks to the short side. Next support levels seen at $1470 then $1340.

For those seeking a haven in equities that have been trading at all time highs, we suggest you refrain from schadenfreude - and be careful what you wish for.

Underpinning gold are attractive fundamentals with the price floor in the form of mine costs rising sharply (gold prices rose 6% last year and costs 12%). More of this and a little below the current price and the gold-shorters will be butting up against production cut-backs - this wheeze will run its course.

Meanwhile the total US national debt rises in 2013 from 16.8 to 17.8 trillion dollars - before number blindness creeps in a translation is perhaps in order - that is equivalent to more than 330,000 tonnes of gold, or over twice all of the gold ever produced in history or total gold mine production for the next 120 years - fat chance that is going to be paid down through the fruits of economic labour.

Gold will remain on the ropes until it engenders higher levels of investment demand - for that it will require more sales channels, more product innovation and more education. It is a tiny lifeboat in a sea of economic trouble - this boat ain't sunk yet !

Ross Norman

12 Apr 2013 | Categories: Gold

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