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Why Gold prices fell sharply along with Silver in September 2011??

Prices are now consolidating at higher levels, but the outlook is mixed, we still favour Gold and Silver!

  • The rally in the dollar is a sure sign of a pick-up in safe-haven buying – we think Gold will benefit from this now the initial sell-off has run its course.
  • The EU debt crisis looks set to come to a head soon – when it does the fall-out is likely to be bullish for Gold.
  • The net long position in Gold has fallen significantly – the market no longer looks overcrowded.
  • If Gold heads higher again, then Silver may have a lot of catching up to do – the Gold/Silver ratio is last at 1:51.


Gold prices peaked at $1,921/oz on 6th September, they have since undergone a significant correction that took prices down to a low of $1,532/oz – a drop of 20%. Prices are now consolidating around the $1,650/oz level. The bears who had viewed Gold as a bubble market now probably feel vindicated. However, while we can see why some longs needed to take profits, we also feel that the arguments for holding Gold remain strong. Therefore we expect further price gains in the months ahead – although the next run higher might also signal the beginning of the end of this phase of the bull market.

We would say Gold is just repeating the pattern we have seen many times over the past decade, whereby a broad base sell-off initially carries Gold prices down as liquidation selling overwhelms the safe-haven buying. The secondary reaction is then to see safe-haven buying dominate again. Indeed, given we have noticed this pattern, others will have too, so safe-haven buyers probably now know it is best to wait a while – let prices really sell-off before buying again. The spike lower in prices on 26th September was caused by another hike in margin rates, which no doubt forced even more long liquidation – but that may well have now got the last of the weak longs out. However, after the volatility and with a far from perfect chart picture, buyers seem to be in no rush to return. There has been some buying, which has lifted prices $120/oz off the sell-off low, but follow through buying has yet to emerge.

Gold’s rally ran out of steam before rechallenging $1,000/oz, prices are now correcting.

· Physical demand remains depressed and it may take lower prices to prompt buying, however, there may be considerable pent-up demand.

· The dollar’s slide has run into support and even a slight rebound in the dollar has already started to weigh on Gold prices.

· ETF and fund buying have also slowed, so Gold is having to absorb some less than bullish developments.

· Gold is consolidating and prices may dip further, before heading higher again. We remain bullish over the medium term.

Technical – Gold is looking vulnerable
The strong rally from $865/oz in April to the June high at $990/oz has paused and prices are now either consolidating before embarking on another up leg, or else are about to break lower. On 12th June prices broke through the neckline of a head and shoulders pattern, the target generated by this pattern suggests a possible move down to $896/oz. Since breaking below the neckline, prices have returned to test the neckline twice, but have not managed to close above it. On the downside prices were finding support around the 100 day moving average at $928/oz, but have now pushed lower. This increases the danger that prices are rolling over to the downside, having traded sideways over the past two weeks. On the upside it maybe that prices are building a higher base from which to attack the $1,000/oz area again, but it would take a close above the neckline at around $950/oz and a move up through resistance at $965.40/oz to make Gold look bullish again.

Summary – Gold prices are consolidating after their failure to overcome the $1,000/oz level, which has prompted some profit taking. However, the big picture outlook for Gold remains bullish and it is interesting that the gross fund short position has been falling during the recent price weakness. Overall, we feel that strong performances in other asset classes have seen some money switch out of bullion, but it could easily return. With industrial metals and equities still thought to be undergoing bear- market rallies, it would not be surprising to see safe-haven buying return to Gold once a correction in equities gets underway. However, our main reason to remain long term bullish is the prospect that competitive devaluation amongst numerous hard currencies will lead to further trouble for the financial markets. This is likely to keep interest in Gold running at a high level. As such, we would see any sell-off in Gold as a medium term buying opportunity.

Gold found support at $865/oz and prices have since embarked on another up leg that looks set to challenge the highs above $1,000/oz.

· Holdings in the Gold ETFs have started to pick-up again and funds have been even stronger buyers.

· Fresh dollar weakness has been an important driver in the market, but there are also concerns that economic recovery and quantitative easing could bring forward inflation.

· With other asset classes also rising strongly there is growing risk of a setback, that could funnel more money into Gold.

· The move above $930/oz got us bullish again and we are now looking for new highs.

Gold starts its second up leg with prices rechallenging resistance above $990/oz.

At the start of May, Gold was consolidating off the April lows at $865/oz and the jury was out as to whether prices would dip further, or resume their uptrend. Our stance was to wait for the market to show its hand, with the recommendation to join the rally on a move up through $930/oz, which we saw on 13th May – by early June prices had reached $990/oz. Numerous factors are combining to boost the Gold price and there seems a high chance now that this up leg will head on into new high ground above $1,032.50/oz. There are of course factors that could trigger profit taking, but overall the big picture for Gold has started to look bullish again and any dips are likely to be viewed as further buying opportunities.

Technical – Gold challenges key levels

Having found a base around $865/oz Gold prices started to bounce and the rally appears to be turning into another up leg. The first up leg ran from around $700/oz in November to the $1,006/oz peak in February, it consolidated until mid-April, before breaking above the down trend line in early May at around $905/oz. If the second up leg runs a similar distance to the first up leg then we could be looking for a move up towards $1,200/oz. Near term expect resistance around the $1,000/oz level, but once prices surpass $1006/oz a run up to the highs could follow quickly. As we saw during the first up leg, large pull backs can be seen along the way; last November/December Gold saw a pull back of $90/oz and in January there was an $86/oz drop, so volatile trading is likely, especially as we approach the highs. With trend line support around $950/oz and $910/oz and the 100 day moving average around $915/oz, pull backs towards these levels can not be ruled out, but such moves are likely to attract buying.

Summary – Gold prices have started to head higher and look set to challenge supply around the highs.

The markets are worried about dollar weakness and the level of US debt and as a result there are ongoing concerns about the financial crisis that could intensify again. In addition, with equities and industrial commodities extending gains they are becoming vulnerable to setbacks. Any such set back could see more money move into Gold as investors focus on wealth preservation. The rally has already covered a lot of ground and investors and funds have been active, so the combination of looming resistance above $1,000/oz and general nervousness, may well trigger bouts of profit-taking. Overall we expect dips to attract buying and for Gold prices to be trading at new record levels before long.

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Retail Gold Price (October 2011)

Federation of Goldsmiths Jewellers Association of Malaysia (FGJAM)

999 Gold    :      RM200.00/gm
916 Gold    :      RM189.00/gm

835 Gold    :      RM1792.00/gm
750 Gold    :      RM155.00/gm
375 Gold    :      RM 84.00/gm

updated on 21 Oct 2011.

UOB Malaysia Gold Price

UOB Malaysia Gold Price

UOB Singapore Gold Price

UOB Singapore Gold Price

Indonesia Fine Gold Price

Logam Mulia Gold Price

Maybank Gold Saving 2009

BUY (RM/g)

Kijang Emas 2009


FRIDAY 13 Nov 2009
Size Sell  Buy
1 oz (31.1gm) 3,884 3,653
1/2 oz (15.5gm) 1,979 1,827
1/4 oz (7.77gm) 1,008 913

Public Bank Gold Saving 2009

BUY (RM/g)

Kelantan Gold Dinar 2009

SELL (1dinar)
BUY (1dinar)

Public Gold 2009

 Size PG Sell PG Buy
20gm RM 2,703 RM 2,541
50gm RM 6,726 RM 6,356
100gm RM 13,389 RM 12,720

Retail Gold Price (Nov 2009)

Federation of Goldsmiths Jewellers Association of Malaysia (FGJAM)

999 Gold    :      RM142.00/gm
916 Gold    :      RM134.00/gm

835 Gold    :      RM122.00/gm
750 Gold    :      RM110.00/gm
375 Gold    :      RM 59.00/gm

updated on 05 Nov 2009.

Retail Gold Price (Sept-Oct 09)

999 Gold    :      RM135.00/gm
916 Gold    :      RM127.00/gm

835 Gold    :      RM117.00/gm
750 Gold    :      RM105.00/gm
375 Gold    :      RM 57.00/gm

Retail Gold Price (May-Aug 09

999 Gold    :      RM130.00/gm
916 Gold    :      RM122.00/gm

835 Gold    :      RM112.00/gm
750 Gold    :      RM101.00/gm
375 Gold    :      RM 55.00/gm

Retail Gold Price (April 2009)

999 Gold    :      RM125.00/gm
916 Gold    :      RM117.00/gm

835 Gold    :      RM108.00/gm
750 Gold    :      RM 97.00/gm
375 Gold    :      RM 53.00/gm

Retail Gold Price (March 2009)

999 Gold    :      RM130.00/gm
916 Gold    :      RM122.00/gm

835 Gold    :      RM112.00/gm
750 Gold    :      RM101.00/gm
375 Gold    :      RM 55.00/gm

Kitco Gold Spot Price

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