Short Term Picture For Precious Metals Complex Is Mixed With Bullish Bias

Today price decline in precious metals is said to be led by the news out of China that gold demand declined 19.4% in H1 of 2014, as reported by the China Gold Association said.

From Reuters:

Production rose strongly in the same period as miners ramped up output to protect profit margins. Gold demand from China, the world’s largest consumer, has slackened this year as a 28% tumble in 2013 prices, which was the first annual decline in 13 years. Lower demand this year is also partly due to huge purchases last year. The drop in prices prompted many to bring forward their purchases, eating into 2014 demand.

Gold demand from January to June stood at 569.45 tonnes, compared with 706.36 tonnes in the same period last year, the association said in a statement on its website. Total output in the first six months of 2014 reached 211.1 tonnes, up 9.47 percent from a year ago.

In a sign that Chinese consumers were seeking other investments as an inflation hedge, sales of gold bars and coins fell 62.1 percent and 44.3 percent respectively. Jewellery sales in the first half rose 11 percent from a year ago to 426.17 tonnes, while industrial consumption rose 11.3 percent.

Although gold and silver had one of their worst days of the year, the technical damage is still under control at this point. For instance, their 50 day moving average is still holding. The charts below show the main assets in the precious metals complex. Each chart shows its 20 day moving average with the blue line and its 50 day moving average with the red line.

precious_metals_complex_24_July_2014

 

Gold and platinum closed almost exactly at their 50 day moving average. Silver closed between both moving averages, just like the junior gold mining index GDXJ. Palladium and GDX closed at or near their 20 day moving average.

Overall the technical damage is limited. However, the fact that silver and the miners declined much sharper than gold is not a good sign.

In the bigger picture, there are two interesting charts to share. The first one shows inflation expectations, as tracked by the symbol TIP on the chart (representing the TIPS bond fund), keep on rising in 2014. Gold has been closely tracking TIP but is somehow stagnating since May.

gold_price_vs_TIP_24_July_2014

 

The second chart (courtesy Sean Brodrick) shows typical seasonality. August has been historically one of the best months of the year for the metals. Since 2009, the average gold price increase has been 5.9%. In 80% of the months since 2009, both July and August closed higher than their opening.

gold_seasonality_July_2014

 

The short term picture for the precious metals complex is mixed with a positive bias.

 

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