Gold price tumbles on reports of de-escalating Middle East tensions
Gold plunged 3% after Axios reported that Israel and Lebanon have accepted the terms of a ceasefire agreement.
So far this week we have seen a mammoth $67.80 trading range in the Globex Gold market. The Gold market had been technically over-bought and in need of this correction. We had a high of $1242.00 on Monday and a low of $1175.00 here on Thursday.
This volatility can be directly linked to the continued European Union debt crisis that truly delivers a new wrinkle on a daily basis. The uncertainty in the euro region had investors flocking to gold as a safer haven the past few weeks fueling the rally to a new contract high of $1249.70 last week.
However, the technically over-bought market had lost rally momentum and persuaded investors to take profits as the rumors and news reports out of the EU had global investors rattled.
On Monday the European central Bank revealed It had made 16.5 billion in “bond purchases” (through May 14th) and added “they would carry out another liquidity absorbing operation next week”… Monday Fitch ratings said “investors are deeply skeptical about the ability of governments to get a handle on their huge debt burdens”…
On Tuesday … Gold traders continued to take profits as the news from the European Union continues to leave investors bewildered. The news out of Germany continues to shake the confidence of the savviest investor.
BaFin (Germany’s financial services regulator) has announced it will introduce a temporary plan to ban short selling at midnight tonight…The ban will apply to naked short selling and naked credit default swaps of Euro region government bonds starting at midnight tonight and in effect until March 31st ,2011.
There is certainly a new wrinkle every day. The gold has been a safety haven for many global investors and has been the primary fuel to the rally. However, today’s news from BaFin has investors nervously taking profits in anticipation to the reaction of the pending ban. It certainly is a very stringent measure in hopes of supporting the Euro. They need liquidity in their region….this will reduce liquidity as market makers will be forced out…..
On Wednesday it was rumored that Greece was considering pulling out of the European Union and this rumor rallied the euro to session highs against the U.S Dollar and Swiss Franc… The bottom line is the European Region appears to grasping at straws as policy-makers continue to install extremely rigid measures in an attempt to stabilize the region. However, I believe many investors are concerned that the regulators are in a “panic mode”.
The savvy investor is not convinced the smaller states will be able to repay their debt simply based on their HIGH debt and LOW economic growth. Thursday brought a continued sell-off as Gold traders Watched the market break through key support level ($1185.00 &1180.00) which technically filled “gaps”. The speculation of INTERVENTION in the European Union was realized today. This should help the psyche of Euro region; however I will certainly take a wait and see approach….
The Economic data for the week….
*Housing Starts were better than expected and reached its highest mark since October 2008.
*PPI -unexpectedly dropped 0.1%…
*CPI- declined for the first time in 13 months…
*The number of American homeowners in foreclosure has reached a record 4.6%…in addition 10% of homeowners have missed a mortgage payment in the 1st quarter…..
*Jobless Claims number ROSE 25,000…to 471,000 this means 25,000 American need unemployment benefits…
This is very disappointing! Gold bugs should expect the volatile and choppy market conditions to continue because the only true certainty is the continued uncertainty that will be coming out of the EU…
Mike Daly / Gold Specialist
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