BULLION MORNING - Gold stays strong near highs on US, eurozone cues

Gold remained strong on Monday morning, having briefly broken through $1,600 at one stage, while uncertainty in Europe and the US continued to drive investors towards safe havens.

Spot gold rose as high as $1,600.80 per ounce, a fresh all-time high and up $7.70 from Friday’s close. Prices were last at $1,598.50/1,599.30, still up $5.40.

On the charts, the next upside target stands at $1,604, while support is pegged at $1,591 - gains for 10 consecutive sessions are seen as a sign that a possible modest pullback or at least a short period of consolidation is looming.

“Although temporary setbacks are possible given the current euphoria, the climate remains favourable for gold,” broker Commerzbank said.

The yellow metal also rallied in other currencies, including a fresh all-time high in euro terms at 1,139.50 per ounce and in sterling terms at 994.60.

“Gold prices advanced on flight-to-safety trades as concerns over EU sovereign debt crisis deepen and US recording slowing industrial production and 2.5 years’ low consumer sentiment,” broker Fairfax said.

Gold made gains a fall in the euro to 1.40 against the dollar - the single currency was depressed by the threat of contagion in the eurozone, although results of stress tests of 90 EU region banks were better than expected. Meanwhile, the possibility of a US financial default have dulled risk appetite and encouraged a shift to safe-havens assets.

On Friday, the European Banking Authority (EBA) said that eight banks failed the stress tests, with a total capital shortfall of $3.5 billion.

In the spotlight this week is a meeting of eurozone leaders on Thursday to thrash out a second bailout for Greece and avoid contagion to core economies such as Italy.

Strong investor interest towards gold was also reflected in financial positioning - in the week ending July 12, net long positions on Comex increased by 20 percent to 199,100 contracts, according to Commerzbank.

Also, the world's largest gold exchange-traded fund (ETF), SPDR Gold Trust, reported inflows of 10.6 tonnes on Friday alone.

Among other precious metals, silver followed in gold’s footsteps, with spot prices climbing to their highest since May 4 at $40.17 per ounce at one point, an increase of 94 cents or 2.4 percent. The metal was last at $39.88/29.93, still up 65 cents.

“Silver is clearly not being viewed as a base metal but as a store of value like gold,” Commerzbank noted.

Investors’ net long positions rose to a 10-week high of 18,300 contracts last week, while short positions now stand at 612.1 tonnes, the lowest this year and well below last year’s average of 1,166.9 tonnes.

“The sustained decline in short positions is an indication that silver is shrugging off the market’s bearish stance,” broker Standard Bank said.
Elsewhere, platinum fell $2 to $1,760/1,770 per ounce, while palladium was down $1 to $781/787.

Source: www.fxstreet.com