Venezuela Gold Swap Positive For The Market As Price Pushes To $1,200
Venezuela’s $1 billion gold swap with Citibank is helping to create some much-needed momentum in the marketplace, pushing prices to $1,200 an ounce Monday.Bill Baruch, chief market strategist at iiTrader, said looking back, last week’s price action now makes sense as forces were trying to keep gold prices low while the two sides successfully negotiated the gold swap.
Many analysts were perplexed last week as gold failed to rally following consistent weaker-than-expected U.S. economic data. Baruch described it as gold having no “mojo.”
“Last week, there was a large amount of selling that kept prices low and now we know why,” he said.
Although Venezuela has been in negotiations with Citibank for a while, Reuters reported that the deal was officially made on Friday. The South American country has been trying to raise its foreign capital to mitigate soaring inflation, a shrinking economy and depressed oil prices.
With nothing now standing in gold’s way, Baruch said that eager longs are now entering the marketplace, putting a classic “squeeze” on prices.
On Monday, after North American markets opened, gold prices shot from a low of $1,184 an ounce back to $1,200 an ounce.
“The longs have been waiting for the market to move and I think we are going to see another pop today or tomorrow,” said Baruch.
George Gero, vice president and precious metals strategist with RBC Capital Markets Global Futures, agreed that the gold swap is extremely bullish for the yellow metal and attracting much needed investor interest to the marketplace.
“Open interest is back above 420,000 so funds are jumping back in with more second-quarter asset allocation,” he said. “I think this deal between Venezuela and Citi is very constructive.”
Gero added that a bank doesn’t buy $1 billion in gold and then expect prices to continue to fall.
“Citi wouldn’t have done this deal if they didn’t have a plan and a home for that gold,” he noted.
Looking at the technicals, Ole Hasen, head of commodity strategy at Saxo Bank, said that buy stops were triggered after gold prices broke above $1,877 an ounce. He added that the rally could also be due to May’s options expiration today, “considering the interest clustered around the 1200 strike.” |
