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BookmarkGold gained for the third straight session, the longest rally this year, on the realisation that the European crisis may worsen. Fitch Ratings cut Italy’s credit rating by one level on Friday. Fitch downgrading Italy is likely providing support as is robust demand in Asia, particularly China.
Average daily trading combined volumes on the three main gold contracts on the Shanghai Gold Exchange in the first two months of the year jumped 24% on the year, according to Reuter’s calculations.
“The strong physical demand in China is the main reason behind gold’s resilience,” a Beijing-based trader told Reuters. Physical demand prospects out of China remain positive in the weeks ahead, UBS AG said according to Bloomberg.
China is very vulnerable to a property crash and its own economic crisis. The Chinese stock market has performed very poorly in recent years and Chinese people realise the importance of gold as a store of value.
The market continues to digest the better than expected U.S. jobs data with the risks still emanating from Italy and the Euro zone. Contagion in the Eurozone and indeed currency crises remain real risks – risks which are being completely ignored … for now.
Sentiment is as bad as we have seen it in recent years which suggests to us that while gold may go lower in the short term – we are close to a bottom.
The global debt crisis is far from over and when it erupts anew, gold’s appeal as an important diversification and safe haven will be appreciated once again.
