Quiet gold market primed for break-out price move

The gold market has been uncharacteristically quite this year with the metal hovering either side of $1,300 for the better part of two months.

In a recent research note Edel Tully and Joni Teves, analysts at investment bank UBS, argued that the quiet on the gold market may be a good thing:

"Gold is not on the radar for many, and with broad expectations that prices will be range-bound this year, many investors are opting to stay out of this market," UBS wrote. "That is probably gold's biggest positive right now."

Gold is not on the radar for many investors

The thinking being that too much attention from speculators and any big economic news would automatically be seen as a negative given current gold market sentiment.

Gold's charts may be telling a different story however.

"This is an alert. The gold price has formed a triangle type pattern and is dropping out of it, plus the moving averages have converged with price. This type of action invariably precedes a sharp move."

New India govt may relax Gold import duty: HSBC

With the election of the Bharatiya Janata Party in India last week, there are hopes that some of the onerous duties on gold imports will be lifted, said HSBC.

HSBC citing a story from Bloomberg, the director of the All India Gems and Jewelry Trade Federation was quoted as saying that India will probably cut the 10% tax on gold imports and relax the 80-20 rule in July.

These restrictions were put on gold in 2013 to help reduce India’s current account deficit, which has fallen to 2.81% from 5.36% last year, said HSBC

“Earlier in the year, members of the BJP said that the gold trade restrictions may be put on review within three months after their victory. An easing of India’s bullion trade restrictions would be price supportive and may help stem the potential for further losses, in our view,” HSBC concluded.

Outdated Chinese Aluminium Plants to be Shutdown in 3 years

China will shut down its outdated and high costs aluminium plants in two to three years, a part of a program to analyze the capacity growth of one of the most oversupplied commodities in the country. The phase out of these plants will greatly help the metal price in the country, its top producer and consumer. It will also help to recover from the sharp drop of about 30 percent in the last four years.

Vice-president in charge of the aluminium business at China Power Investment Corp (CPI), the second biggest producer of aluminium in the country, said that Chinese demand and supply would be mostly in balance in five years or longer. He added, while attending an industry conference in Hong Kong yesterday, that China was not about to become a big importer of primary aluminium.

He estimated the country’s net primary aluminium capacity will be about 40 million tonnes in two to three years, which indicated a growth rate less than 10% from 31 million tonnes of last year. This would be considerably below the annual rise of around 20% seen between 2003 and 2012. Last week, as a part of the move aimed at closing inefficient, obsolete and polluting plants, government vowed that it would reduce at least 420,000 tonnes of outdated aluminium capacity this year.

Senior analyst of China Minmetals Non-Ferrous Metals, Wang Feihong pointed out during the conference that the construction of new plant will also slow because the heavily indebted local government cut financial aid to outdated, less efficient aluminium plants. Pollution control are in picking up pace and Mainland banks also curtail loans. He added that new primary aluminium plant of around 4 million tonnes capacity would be build this year.

COCHILCO survey predicts further cut in 2014 copper prices

The most recent survey conducted by the Chilean Copper Commission (Cochilco) indicates that the country’s market experts have further cut the 2014 price forecasts for copper. The copper prices for 2014 is now predicted at $3.07 per lb.This are 7 cents lower when compared with the results of October 2013 survey.

The Cochilco survey comes immediately after the country’s Finance Minister Alberto Arenas declared that the government had cut its copper price forecast for the year to $3.05 per lb. Earlier in September 2013, the government had projected the copper output from the country at $3.25 per lb.

According to Cochilco, the market experts expressed deep concerns of a slower economic growth in China during the year. The industrial output, retail sales and investment in fixed assets by China are clear indications that the country’s economy still remains weak. Incidentally, China is the largest consumer of the red metal. The participants also feared that the global copper market may turn into surplus as new capacities start production towards the second half of the year.

The market participants projected the 2015 copper prices to be $3 per lb, indicating a further fall. The medium rage outlook also looks extremely subdued with price outlook until 2019 projected to remain at $3 per lb.

The Chilean Copper Commission (COCHILCO) is a specialized technical agency established in 1976, which advises the Chilean government on matters concerning the production of copper and copper byproducts and metals and industrial minerals.

China, India gold investment demand plunges 55%

Mainland China's demand for gold fell 18% in the first quarter of the year as investors bought fewer bars and coins, offsetting record demand for jewellery, according to the latest trend report from the World Gold Council.

The London-based industry body said Chinese purchases declined to 263.2 tonnes, despite a 10% jump in jewellery consumption to a new record level.

The decline in demand for bars and coins – down 55% to 60 tonnes – more than offset interest in jewellery which was boosted by Chinese New Year and Valentine's day buying.

Lower demand from China, which surpassed India as the world's largest gold consumer last year, was blamed on price-sensitivity as gold appreciated nearly 8% in 2014.

The WGC said the most notable decline in jewellery consumption at the country level was in India, with a 9% drop in jewellery demand to 145.6 tonnes.

India's bars and coins buying also showed a huge drop-off of 54% to 98 tonnes. Overall gold demand on the subcontinent slid 26%.

WGC says "as demand for physical gold investment products fell back, the pressures that had been squeezing the supply chain throughout 2013 eased," pushing down price premiums in a number of local markets.

Premiums demanded in China topped out at $37 an ounce last year when gold was trading around $1,200 but fell into discount territory this year.

Premiums in India stayed elevated, but retreated from the stratospheric levels seen late 2013 as curbs on gold imports took its toll.

International gold demand remains steady in Q1: WGC

International gold demand remained unchanged in the first quarter of this year at 1,074.5 tonnes, while jewellery purchases made moderate gains of 3 per cent mainly due to lower gold prices, according to the World Gold Council report.

Global demand for gold stood at 1,077.2 tonnes in the January-March quarter of the previous year.

“... Quarter 1, 2014 signals a return to the long-term average patterns of demand, holding steady at 1,074 tonnes. It is clear that the longer term underpinnings of the gold market, like jewellery demand in Asia, remain firmly in place,” Marcus Grubb, WGC Managing Director (Investment Strategy), said.

It demonstrates the continuing resilience of the market and the unique nature of gold as an asset class, he added.

Demand for jewellery

Global demand for jewellery went up by 3 per cent to 571 tonnes in the first quarter of this year, largely due to lower gold prices compared with Q1 2013, the WGC ‘Gold Demand Trends’ report said.

Seasonal factors, notably Chinese New Year, contributed to record first quarter jewellery demand in China, it said.

There was a 10 per cent rise in demand for jewellery in China, which became the largest global market for gold demand in 2013.

New year seasonal affects were also present in a number of markets in the South East Asian region, especially in Indonesia and Vietnam, where demand increased by nine per cent and three per cent, respectively.

Central banks continued to be strong buyers, purchasing 122 tonnes in the quarter.

“While this represents a fall of six per cent compared to Q1 2013, it is the 13th consecutive quarter, in which central banks have been net purchasers of gold,” the report said.

Exchange traded fund flows

Movements within the investment space were more striking as net ETF (exchange traded fund) flows were zero compared with 177 tonnes of outflows in Q1 2013.

Demand for bars and coins fell 39 per cent to 283 tonnes.

However, this coincided with the first rise in the quarterly average gold price seen since Q4 2012, which encouraged private investors to wait for clearer signs about the longer term path of the price of gold before deciding on their investment strategy, it said.

Euro Dollar Trading Has Barely Changed In Five Years.

For all the headlines and hand-wringing since 2009 about the viability of the euro, its exchange rate versus the dollar has barely changed in five years.

While we admit the observation may seem superficial (the euro rose to $1.51 in 2009 and fell to $1.19 in 2010), we make mention in order to highlight the distinction between holding euros over time versus trading euros short-term across time zones, where the Citigroup currency team has identified an uncanny trading pattern.

To understand the opportunity, first recognize how dealers trade currencies. There are three "spot" markets for trading euros over the course of a 24-hour day. New York constitutes the primary market from 8am to 5pm ET, followed by Tokyo 5pm to 1am ET and then London 1am ET until New York resumes the following day at 8am.

Citigroup Head of G10 FX Strategy Richard Cochinos analyzed the intra-session price action of the euro for the three spot markets and found a very clear pattern since 2009. Whereas London tended to trade lower, New York tended to trade higher. Asia was roughly flat. Over time, this pattern created some significant distortions.

Reliable patterns are hard to come by, and this one strikes us as particularly valuable. As Mr. Cochinos wrote to clients: "Day trading behavior is tending to skew prices in a meaningful manner. Supporting evidence for this type of quick reversal has also shown up in our cash order flow."

As for those of us wondering how to profit, he elaborates:

International money flows are complex. This relationship is not: Buy euro dips early in the London session, sell them in New York late afternoon.

 Bloomberg annotates in charts so simple a 5th grader can get it