Gold Trading Alert: Miners Consolidate Before Next Big Move

Gold basically did nothing once again, but – this might seem surprising – the implications are actually bearish, not neutral. The reason is that gold remains in a rather tight and quickly declining trend channel. The pause that we saw in the past several days was enough to take gold from the lower border of the trend channel (which provided support) to (almost) its middle.

In other words, thanks to doing nothing recently, gold can now move lower without encountering support immediately. It’s still possible that gold will continue to move sideways or even move a bit higher in the following days, but the potential size of the correction is now bigger as the upper border of the declining trend channel is also lower.

The next interim target for gold is at about $1,120 and the final one is at about the $1,000 level.

Once again, nothing changed in the case of silver (and the outlook remains bearish), so let’s move on to the situation in mining stocks and to the reply to the previous question about the miners’ pause.

Global demand for gold up to 6%

Global demand for gold up to 6% in the 3 quarter of the year, mainly due to an increased demand from investors looking to park their funds in safe heavens in the wake of the global economic uncertainties, according to a new report by the World Gold Council. The demand for gold in the quarter increase up to 1,053.9 metric tons compared to 991.1 tons in the same period of 2010, said World Gold Council in its latest Gold Demand Trends report. The investment demand rose in the third quarter to 468.1 tons, or $25.6 billion.

Precious Metals Gold prices trading at US$130 premium over platinum

Gold: 1641.00 – down US$40 on the week. The only positive result for gold over the course of last week is that it is still trading at US $130 premium over platinum. Gold has rediscovered its inverse relationship with the US$ and it is now reacting positively and correlates to rises in equities and also with a stronger Euro.
The US$1600 level was not seriously tested but it seems that gold is firmly stuck, for the time being, between U$1600 and US$1695.

We have seen a pick-up in physical buying ahead of Diwali but it has been less than what we expected. I still look for the gold price to rise but this current see-saw action curbs a lot of enthusiasm and conviction out of the market.

Option volatilities midrates:  Gold atm
1 month       28.00 % up       0.75 %
3 month       28.30 % down 0.20 %
6 month       28.75 % down 0.75 %
1 year          29.40 % down 0.60 %
EFP (Exchange for physical) midrate: Gold spot to December Comex: US $ 1.05
ETF: Holdings nearly unchanged at 2326 tons overall
Support: 1585 and 1568       Resistance: 1664 and 1692
OUTLOOK: Neutral