Gold Bounces Upward After Gold Referendum Oversold Positions

The metals fell sharply during overnight trading after Swiss voters resoundingly rejected a referendum that would have required their central bank to more than double its gold holdings. Silver hit a five-year low.

But hours later, both have roared back into positive territory for the day on ideas that the initial weakness was “overdone,” with short covering setting in and physical buyers scooping up metal at bargain prices.  The rally got an extra lift from news that Moody’s downgraded Japan’s credit rating.

In overnight screen trading, gold for February delivery traded as low as $1,141.70 an ounce overnight, which was a loss of $33.80 from Friday’s pit close. However, as of 9:20 a.m. EST Monday, the metal was $5.40 higher for the day to $1,180.90 an ounce.

March silver  fell as far as $14.155 an ounce, which at the time was a loss of $1.401 an ounce. On a futures continuation chart, this was the lowest level since August 2009. However, since the metal has shot back higher all the way to $15.90, a gain of 34.4 cents for the day.

Going into the weekend, analysts had suggested gold might sell off if the Swiss measure failed, but did not look for the weakness to be lasting since it was already expected, based on media polls. The greater move might have been strength should there have been an unexpected “yes” vote, they said.

The precious metals went out on a weak note in after-hours electronic trading Friday on sympathy selling with crude oil. Then results of a Swiss gold referendum on Sunday showed that 77% of the populace voted against the measure, a far more one-sided result than pre-election polls had suggested.

via Witco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza