London Gold Market Report
from Adrian Ash
BullionVault
Thursday 13 Dec, 07:30 EST
GOLD and silver fell hard overnight and early Thursday in London, dropping as European stock markets also fell and the US Dollar rose despite yesterday’s latest “easy money” policy from the Federal Reserve.
Holding its key interest rate in the record low range of 0% to 0.25% for the 48th month running, the Fed’s open market committee swapped its guidance for any rise in interest rates from mid-2015 to a target unemployment rate of 6.5% or below.
The Fed also confirmed it will begin a new round of quantitative easing in January, spending $45 billion per month to buy US government debt with no limit on the program’s total purchases.
“Any QE should be positive for the yellow metal,” said one wholesale gold dealer before Wednesday’s announcement.
Yet after jumping $10 an ounce to a 2-week high of $1723 on the news, the Gold Price then fell back, dropping through $1700 at the start of Asian trade.
“What is behind this weakness?” asks Dubai-based gold dealer INTL FCStone.
“We suspect that with the Fed now on a prolonged easy stance, the lack of progress coming out of Washington with respect to the fiscal cliff talks [regarding $600bn of scheduled US spending cuts and tax hikes] is causing increasing concern.
“We would rather watch things from the sidelines for the time being, as the markets are getting too choppy to trade.”
More than 60% of the new, open-ended QE program will be spent on medium and long-term US Treasury bonds, the New York Fed said yesterday.
Yet longer-dated US bonds fell early Thursday, pushing the interest rates they offer to investors higher.
The US Dollar meantime reversed an overnight drop versus the Euro and British Pound, helping the gold price in those currencies recover a little from 1-week lows.
Silver fell to $32.79 on Thursday morning, down $1.00 per ounce from Wednesday’s 2-week high.
“We remain gold bulls,” says Swiss investment and bullion bank UBS in a new commodities review today.
“Ongoing uncertainty around US fiscal issues, together with the view that major central banks will maintain loose monetary policies for longer, are key supports of our outlook.
“Gold’s ‘X-factor’ is a resolution [to the fiscal cliff] that includes a lift to the debt ceiling which, in turn, increases the likelihood of ratings agency action [ie, downgrading the United States’ long-term credit rating], boosting gold’s popularity in 2013.”
The Bank of Japan is meantime planning to allow hedge funds and other financial speculators to receive money from its quantitative easing program, according to Bloomberg, removing the current restriction on interbank lending.
Bloomberg’s “insider sources” also say the BoJ wants to avoid boosting Japan’s huge government debts, and so will target private-sector assets with its newly-created money instead.
“While the Yen has fallen almost 5% against the Dollar in the past month,” notes the newswire, “it’s still stronger than the ¥100 per Dollar that Nissan Motor Co. chief executive Carlos Ghosn said is the currency’s ‘neutral range’.”
The Swiss National Bank remains “prepared to buy foreign currency in unlimited quantities” it said again today, creating and selling Francs on the FX market to its hold its value beneath €1.20.
Swiss banking giant UBS this week joined its rival Credit Suisse in setting its short-term interest rate for depositors below zero, charging account holders for running a positive balance.
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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver vaulted in Zurich for just 0.5% in dealing fees.
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