Why buy Gold today?
Last week’s capitulation through wavering support may well have attracted Gold some much needed buying interest...
In last week’s article I was suspicious that the spike lower in Gold, during a low volume trading session, was either a poorly executed order or an attempt at market manipulation. As anticipated, prices remained tightly linked to the US$1,100 per oz. level, which on Tuesday’s August Gold Option expiry saw Gold settling below this, yielding holders of the 1100 Gold Puts a fortuitous profit. Remembering that just over a week earlier we were trading at US$1,155 per oz. and hitting US$1,100 was highly improbable. If this was in fact an option play then we might well see Gold regain the 1100 level into month end, and even recouping lost ground up to $1140.
Its hard to argue against the current bearishness of the current commodity market. Crude Oil has tumbled 20 percent this month alone, teetering on the verge of a bear market, after Iran agreed to curb its nuclear program in return for an easing of sanctions. Pushing some speculators away from the commodities space. Physical gold demand is also down 14 percent year-over-year in the second quarter and at the lowest level since 2008. Though this shouldn’t come as a surprise to traders, as demand is usually weak at this time of year, and no one wants to try catching a falling knife. (Why buy today when quite possibly tomorrow will see an even cheaper price.) However, the market currently seems overly short and therefore ripe for a short covering rally. This could in turn attract other buyers into the market fearing missing out on securing an undervalued market.