Gold hits 5-week high from early dive triggered by Swiss referendum

Gold prices experienced a dramatic comeback Monday after falling sharply in overnight trading due to Swiss voters unquestionably rejecting a proposal to boost the country’s gold reserves.

The precious metal traded as low as $1,141.70 an ounce overnight, bouncing back to a peak of $1,220 in early afternoon trading.

Spot gold climbed up 2.4% at $1,194.98, while U.S. gold futures for December delivery were up $18.20 at $1,193.70 an ounce.

A combination of factors worked to support gold Monday, including heavy short covering and buy stop orders triggered in the futures, and bargain hunting in the cash market.

A combination of factors worked to support gold Monday, including heavy short covering and buy stop orders triggered in the futures, and bargain hunting in the cash market. A weaker dollar and a recovery in oil prices also helped.

Some safe-haven buying also emerged after a downgrade of Japanese debt and weak manufacturing data around the world, market watchers said.

Gold had started the week in a frail note after the “Save our Gold” position was defeated in Switzerland’s referendum Sunday.

Proposed by the right-wing Swiss People's Party out of concern that the Swiss National Bank (SNB) has already sold too much gold, the measure would have compelled the bank to increase its gold reserves to 20% from around 8% it holds at the moment.

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Gold, Silver, Crude Prices approximate as of 2:40 PM Central.

Is the Bottom In?

These are enormous 1-day swings. Coupled with previous action, it's likely gold and silver have hit at least a short-term bottom, and likely much longer.

Swiss Gold Referendum Fails: 78% Vote Against "Protecting The Country's Wealth"

Whether as a result of an unprecedented scare campaign by the Swiss National Bank (most recently reinforced by Citigroup), or due to confidence that Swiss gold is as safe abroad as it is at home, or simply due to good old-fashioned "hanging chads", today's most awaited event has come and gone and the result - according to early projections by Swiss television SRF - is that the Swiss population overwhelmingly rejected a referendum to force the Swiss National Bank to hold some 20% of its reserves in gold in a landslide vote, with about 78% voting against what AP politely termed "protecting the country's wealth by investing in gold."

As Bloomberg reports, the proposal stipulating the Swiss National Bank hold at least 20 percent of its 520-billion-franc ($540 billion) balance sheet in gold was voted down by 78 percent to 22 percent, according to projections by Swiss television SRF as of 1:00 p.m. local time. The initiative “Save Our Swiss Gold” also would have prohibited the SNB from ever selling any of its bullion and required the 30 percent currently stored in Canada and the U.K. to be repatriated.

A map showing the breakdown of the Swiss vote by canton: none of the 23 Swiss regions had a majority vote for the gold initiative.

That said the decision will likley not come as a surprise because while early polls gave the yes camp a surprising lead, subsequently polling showed a marked shift in public opinion, and forecast the initiative’s rejection.

The biggest winner, of course, is the Swiss central bank: SNB policy makers warned repeatedly that the measure would have made it harder to keep prices stable and shield the central bank’s cap on the franc of 1.20 per euro. That minimum exchange rate was set three years ago, with the SNB pledging to buy foreign currency in unlimited amounts to defend it.

“The SNB can feel confirmed in its policy,” said Martin Gueth, economist at LBBW in Stuttgart. “By rejecting the gold measure, voters have come out in favor of its current stance.”

Referendums are a key feature of Switzerland’s system of direct democracy, and are held nationally and at a municipal level several times a year. The gold initiative was launched by a handful of members of the European Union-skeptic Swiss People’s Party. Uneasy about the more than 100 billion euros the SNB holds, they contend their initiative will strengthen -- not weaken -- the central bank’s credibility.

However, SNB President Jordan labeled the initiative “dangerous” and his fellow board member Fritz Zurbruegg said accepting the measure meant the room for maneuver “on currency reserves would be dramatically restricted, with negative consequences for the Swiss economy.”

The central bank, based in Bern and Zurich, would have faced a three-year deadline for repatriating its bullion from abroad and five to meet the 20 percent benchmark. With the European Central Bank poised to enact more stimulus to boost feeble growth and inflation, economists surveyed by Bloomberg News in a poll published on Nov. 19 had expected the SNB to maintain its ceiling on the franc into 2017.

The question now is what will happen to the Swiss France, which recently rose to a 26-month high against the euro. For many the concern that a successful gold referendum served as a catalyst to avoid going all in the CHF, as gold purchases would have weakened the currency. “If the euro crisis doesn’t get worse, then the minimum exchange rate will be defendable, said David Marmet, an economist at Zuercher Kantonalbank. Had the initiative been accepted, ‘‘instruments such as negative rates that don’t widen the balance sheet” would have been an option, he said.

With the referendum out of the way, the CHF may paradoxically find itself with a situation in which the inflows in the CHF force it to double down on defending the cap: economists have questioned whether the SNB will now find itself having to reinforce its cap with a negative interest rate on the cash-like deposits commercial banks keep with the central bank, making good on its threat to take further steps “immediately” if necessary.

And then there is the question of what happens to the tension in the gold swap market: as noted last week, the 1 Month GOFO rate had tumbled to the most negative in over a decade. It was not clear if this collateral gold squeeze was the result of Swiss referendum overhang or due to other reasons. The market's reaction on Monday should answer those questions.

India scraps gold import restrictions

The Reserve Bank of India has just announced on its website the scrapping of restrictions on gold imports, and the withdrawal of the so-called 20:80 rule which forces traders to re-export 20% of all imports.

The import curbs came into force in August 2013, to shore up the tanking rupee and tackle the country's current account deficit which had ballooned to 5.5% of GDP.

The surprise decision – most observers were calling for a tightening – did little for the price of gold in New York, which was last trading down nearly $20 an ounce at $1,178 an ounce, the lowest in more than two weeks.

Although details of the move still has to be disclosed it's likely that the precipitous fall in the price of oil – India's top import ahead of gold – played a role.

Indian gold imports have surged recently, but the decline in crude price will soften the impact should Indian traders continue to ramp up purchases.

CHART: Another huge Friday gold price takedown

After an uneventful week where gold stayed within striking distance of $1,200 an ounce, Friday saw another big move in the price in heavy volume.

The first gap down came right at the open, when a huge sell order of more than 1.2 million ounces dropped the price out of it's trading range.

Then around mid-day another series of trades took the price down to a day low of $1,163.90, a drop of 2.8% from yesterday's close.

For the session volumes were heavy with the most active contract trading the equivalent of 24 million ounces, almost double the three-month average.

A freefall in the price of oil – down 10% on the day – and doubts about the outcome of the Swiss vote on the country's gold reserves could partly explain the drop.

But the surprise scrapping of import duties by top gold consumer India should have buoyed the price. Even before the lifting of the curbs, India's import of gold rocketed and providing a floor for the physical market.

By the close of trade on the Comex division of the New York Mercantile Exchange gold for February delivery was changing hands not far off the lows at $1,165.80 an ounce, down $31.70.

Brent Crude Crashes 7%,after OPEC meeting

Oil Prices Collapse After OPEC Keeps Oil Production Unchanged
OPEC KEEPS OIL PRODUCTION TARGET UNCHANGED AT 30M B/D: DELEGATE WTI @70 and Brent Crude (under $75 for first time since Sept 2010 are collapsing. Big Positive for India

Lowest since June 2010…

CHARTS: Dollar destruction of commodity prices could be ending

The gold price drifted lower on Thursday falling below $1,200 and down nearly $10 overnight, hurt by a 6% slide in the price of oil.

The two commodities often move in tandem because cheaper crude leads to lower inflation, tarnishing gold attractiveness as a hedge against faster rates of price growth.

The fall in the price oil has given another boost to the US dollar. Commodities priced in US dollar usually have an inverse relationship to the world's reserve currency.

The greenback's rise to near five-year highs against a basket of currencies has pressurized not on the price of gold, but everything from copper and cotton to milk and molybdenum.

InvesTRAC passed on this price graph to MINING.com indicating that the US dollar's stunning run since May may be close to correcting.

The technical research and investment blog notes the advance from the May low has "unfolded in five waves which ought to be followed by a three wave correction":

The top of wave 5 seems to be tracing out a head and shoulders top and a dip through 87.50 would open the way to violate the uptrend and teat the bottom of wave 4 at 84.50. The technical picture shows InvesTRAC's short term direction indicator has turned down from an overbought situation with the forecaster showing weakness could be expected until the last week of December. So the stage is set for declining dollar and rising to soon get underway.

InvesTRAC believes the dollar chart confirms movements in the CRB Commodities index and that the decline in the broader commodities index from its June high was probably terminating after a 15.5% decline.

The InvesTRAC short term model shows that the OB/OS indicator has just begun to rise with the forecaster showing a rising ternd into early February. The daily chart below shows a 15 percent rise form the January lows which has more than been taken back by the second half slump…the index has ticked up slightly and is encountering the downtrend with a massive divergence on its RSI. My conclusion is that the worst is over and that we should now (or very soon) see the hard hit commodity prices lifting off their lows.

Copper drops to three-week low on demand worries, aluminium up

* Weak U.S. home sales, consumer spending data
* Chinese speculators hit copper on Shanghai exchange
* London volumes retreat as Thanksgiving, year-end loom
* Nickel stocks rise to fresh record

(Reuters) - Copper fell to a three-week low on Wednesday after soft U.S. economic data and as Chinese speculators hit the market amid worries about weak demand.

Aluminium, however, gained on concern about shortages.

Three-month copper on the London Metal Exchange

(LME) fell to its lowest since Nov. 5 at $6,558 a tonne in intraday trade before paring losses to close 0.6 percent weaker at $6,570.

Volumes on the LME shrank ahead of the U.S. Thanksgiving Day holiday on Thursday.

"It has been a difficult year for speculators to make money and I don't think they are going to risk making bigger losses or eroding some of their gains in the final few weeks of the year, particularly when there aren't really any big stand out stories," said Gayle Berry, metals strategist at Jefferies.

On the Shanghai Futures Exchange, however, turnover climbed four-fold and open interest surged 11 percent as speculators sold copper, said analyst Leon Westgate at Standard Bank.

"With general sentiment at last week’s Asian Copper Week remaining negative... it appeared to be only a matter of time before the more bearish elements of the Chinese speculative community again had another go at shorting the metal."

The metal used in power and construction has been trading in a range between roughly $6,500 and $6,800 a tonne since mid-September and is down more than 10 percent this year.

It hit a three-week high of $6,772.50 a tonne last week following China's surprise interest rate cut. That cut may boost liquidity to businesses after about six months, said Colin Hamilton, head of commodity research at Macquarie.

"This is not an aggressive stimulus ... but it certainly underpins what we're looking at in terms of low single-digit growth rates for steel demand and mid single-digit growth rates for base metals demand into next year," he told a presentation.

Weak U.S. data on consumer and business spending added to jitters about global growth. 

Aluminium rose 0.6 percent to close at $2,061 a tonne as a key spread remained at the highest levels in nearly two years, indicating lack of spot material.

Nickel ended down 1.1 percent at $16,350 a tonne after LME stocks rose to a fresh all-time high.

Zinc finished up 0.1 percent at $2,273 a tonne, lead added 0.5 percent to $2,062.50 and tin rose 0.4 percent to close at $20,275.