London Gold Market Report
from Adrian Ash
BullionVault
Wednesday, 17 July 08:05 EST
The PRICE of GOLD held steady around $1285 per ounce Wednesday morning in London, trading unchanged for the week so far ahead of a key speech from US Federal Reserve chairman Ben Bernanke.
Giving semi-annual testimony to Congress on the direction of monetary policy, Bernanke was widely expected to clarify recent comments on reducing the Fed’s $85 billion in monthly bond purchases through its quantitative easing program.
“We continue to consolidate in a $1270-1300 range” for gold bullion, says a note from Swiss refinery and finance group MKS, “in the lead up to Wednesday’s Congressional address.”
“The last 3 daily candles,” says Scotia Mocatta’s technical note, “can be characterized as ‘spinning tops’ which have a low range from open to close, and are a sign of indecision in the market.”
Longer-term, gold is “seen remaining under pressure,” says fellow London market-maker Societe Generale’s latest Commodity iWatch, “on expectations of Fed tapering, rising [interest] rates, stronger US Dollar and investor selling.”
The Dollar held steady early Wednesday against the Euro, but dropped 1.5¢ vs. the British Pound after minutes from the Bank of England’s latest policy meeting showed a unanimous vote under new governor Mark Carney to keep rates and asset purchase plans unchanged.
That knocked the price of gold for UK investors back to a 3-session low of £844 per ounce – down 1.6% from Tuesday’s near 4-week highs.
“The Fed’s bifurcated message [on rates and QE] will continue,” Bloomberg today quotes Barclays’ senior US economist Michael Gapen.
“Their outlook is for an environment where we can start tapering — so a hawkish tone on tapering switching to a dovish tone on rate hikes.”
“The unwinding [of QE] needs to be carefully phased, planned, communicated,” said International Monetary Fund chief Christine Lagarde at a central-bank conference in Bucharest on Tuesday.
Policy makers should play a “much more subtle game,” she said. Because after proving “a massive positive” for the global economy, the effect of removing QE “remains to be seen.”
Voting policy-maker Esther George – president of the Kansas City Fed – said to Fox Business on Tuesday that starting to reduce QE could likely begin “going into 2014.”
Meantime in Asia today, premiums for physical gold over and above international benchmark prices held strong, Reuters reports.
Hong Kong premiums held near $5 per ounce, while dealers in Tokyo blamed a growing shortage of supplies for Japan’s $2 premium.
Chinese prices for immediate delivery of gold eased back, however, with the premium over benchmark London settlement dropping to $25 per ounce on the Shanghai Gold Exchange, down from last week’s $30 level.
In India, in contrast – the world’s No.1 consumer nation – “Demand [for gold] will be less as there are so many restrictions on import of raw materials,” says Haresh Soni, chairman of the All India Gem & Jewellery Trade Federation.
“A lot of buying took place in April and May. Investment demand is also weak.”
Silver prices were little changed with gold in London trade Wednesday morning, holding in a tight range around $19.90 per ounce.
Other commodities were also unchanged. Major government bond prices slipped, however, nudging 10-year US Treasury yields up to 2.55%.
With longer interest rates rising as tapering talk continues, short-term rates remain held at zero, and the gap between 2-year and 10-year Treasury yields has widened since May to the highest level since summer 2011.
So while “it seems as though the Fed is considering tightening with the ‘taper’ talk,” writes Gary Tanashian in his Notes from the Rabbit Hole, “in reality it is laying the groundwork for the next phase of the ongoing inflation operation.”
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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 in Zurich, Switzerland for just 0.5% commission.
(c) BullionVault 2013
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