Gold rediscovers its mojo

The last five trading days have seen the bulls pull the precious metal back above the $1300 level, but will it last?

The correlation between negative outlooks for economic regions and the gold price has become increasingly fragmented, and arguably ahead of tomorrow’s quarterly EU GDP figures that is a good thing. ECB President Mario Draghi has been overly bullish for some time, but this set of figures could well back up that optimism and as such paint a rosier picture for the eurozone. Previously it would have been more than likely for an upturn in the EU to affect gold negatively, but this is far less certain now.

The sceptics would point to a considerably quieter market and speculate that, once a larger volume of day trading returns, we are more likely to see a return to the bearish trend that has been prevalent over the last ten months.

The big unknown remains the $20 billion-plus-worth of write-downs carried out by the major gold mining companies in the last quarter. We will see how much of this will work its way down to the underlying viability of their mines, and how many of these sites will be moth-balled. To date, the paper gold issued has been sufficient to satisfy the market’s demand, but if there were to be a squeeze in supply, could that kick-start the precious metal?

Spot gold chart

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