A mini bull run for gold?

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Gold prices advanced on Monday in electronic trading, moving above last week’s highs as the equity market continued to wobble. A mini bull run for gold is gaining a pace as perfect storm is unfolding across the Asian financial markets. Most of them are sharply down – Japan (Nikkei Average) down 2.3% late; Hong Kong (Hang Seng Index) down 2%; Shanghai (Shanghai Composite Index) down 0.7%; Seoul (Kospi) down 1.4%; Mumbai (Sensex) down 1.5%, Taipei (Taiex) down 1.7%.

Gold for February delivery jumped to $1,273.80 an ounce. Prices ended Friday with a 1% rally for the week, closing at their highest level since November 19. Over the past five weeks, gold has managed to tack on 5%.

March silver also got into the act, rising 17 cents, or 0.8%, to $19.93 an ounce.

A selloff in global markets turned to Asia with stocks across the region plunging in trading on Monday morning as worries grow over slowing growth and signs the U.S. will ease back on stimulus. The global selloff started last Thursday triggered by a report showing China’s vast manufacturing sector had contracted. Today, Japan lifted the veil on its worst ever in terms of percentage of GDP trade data just ahead of the Monday open. HSBC said in a note out today that while temporary factors may have been responsible for Japan’s 2013 trade deficit, structural factors mean Japan’s trade gap is probably here to stay.

The recent action in gold offers encouraging early signs of a that the lows of 1,180 in June 2013 and 1,182 earlier this month are a double bottom. Gold prices are nearing an important technical mark. The 1,300 level is very significant in yellow metal, as it is also the 50% retracement of the long-term uptrend.

In addition, the potential for an increase in gold imports to India if the government lowers the import duty, along with efforts in Europe to continue their own quantitative-easing policies are all supportive of gold at the present time. In the short term, seasonal demand is expected to pick up as the Chinese New Year falls on January 31. Options expiration on January 28 is also providing some upward pressure to prices.

Later in the week, traders will be watching the U.S. Federal Reserve’s two-day meeting on Wednesday. An additional $10 billion taper of asset purchases is widely expected, but there is also a strong possibility that it will not materialize in the most recent economic conditions.

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