London Gold Market Report
from Adrian Ash
BullionVault
Weds 11 Sept 08:25 EST
WHOLESALE bullion prices bounced on Wednesday from new 3-week lows as the US cancelled a Congressional vote on Syria, and traders pointed to next week’s expected “tapering” of quantitative easing by the Federal Reserve.
Oil prices and other commodities also stemmed this week’s drop. World stock markets rose sharply.
Trading volumes were “thin”, bullion dealers said, with one calling the markets “very quiet” but other reporting “some light physical interest” from Asian stockists as prices fell.
“Syria for now remains a lingering underlying bullish factor” for gold and silver,” says a note from Swiss refining and finance group MKS.
“But with each passing day that will play a smaller component in propping the market up.”
“For the time being at least,” agrees David Govett at brokers Marex, “the Syrian crisis is averted, [so] the ‘war premium’ has gone” from gold prices.
“Now…most people are looking for some sort of quantitative-easing tapering” at next week’s US Fed meeting.
Noting that gold “started to decline with the declining probability of a military intervention” in Syria, analysts at investment bank Goldman Sachs now say “The September FOMC meeting, where our economists expect a tapering of QE3, could prove the catalyst to push prices lower.”
Over the next 12 months, precious metals could drop a further 15%, Goldman Sachs says, advising its clients to go “underweight” the entire commodities complex.
Fellow investment bank J.P.Morgan in contrast recommended going “overweight on commodities” last week, BusinessWeek notes, thanks to rising demand from China, plus better manufacturing data worldwide.
“There’s ample room for fresh selling [of gold and silver] should Fed tapering of QE be confirmed,” said Swiss investment bank UBS analyst Joni Teves earlier this week.
“Gold prices would probably fall to $1250 an ounce in the first move,” Teves told CNBC Tuesday. “But I certainly wouldn’t rule out another attempt below $1200 if…the Fed is more aggressive than the market is currently expecting.”
Major government bonds bounced in price Wednesday morning, edging yields lower from recent multi-month highs.
Ten-year UK gilt yields held above 3.0% however, and Sterling briefly spiked to $1.58 – its highest level since February – after new data showed a surprise fall in the UK jobless rate to 7.7%.
The gold price in British Pounds touched a 4-week low of £860 per ounce, reversing almost half of gold’s July-August rally.
Before raising UK interest rates from their all-time low of 0.5%, Bank of England governor Mark Carney has set “forward guidance” that unemployment must first fall to 7.0%.
Average UK wages last month rose 1.0% from a year earlier, data showed today. Consumer price inflation was last pegged at 2.8% per year.
Silver for UK investors today bounced from £14.49 per ounce, the lowest level in 3 weeks and more than 10% beneath end-August’s peak.
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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 or Singapore for just 0.5% commission.
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