London Gold Market Report
from Adrian Ash
Thurs 21 Nov 08:55 EST
LONDON dealing in gold saw prices retreat towards last night’s new 4-month lows Thursday morning, failing to rally above $1250 per ounce as world stocks markets held flat – and major government bonds continued to slip – following publication of minutes from the US Federal Reserve’s last policy meeting.
For Dollar investors, gold came within 5% of end-June’s 3-year low at $1182, and stood only 2% above that level for Eurozone traders.
In Pounds Sterling, gold edged back Thursday lunchtime to last night’s new 3-year lows at £771 per ounce.
Again tracking but extending the moves in gold, silver failed to hold a brief rally above $20 per ounce, trading at its lowest Dollar values since early August.
“It is difficult to get too bullish on gold…while investors continue to remain bearish,” says one Asian bank’s dealing desk, noting yesterday’s fresh 57-month low in the volume of gold bullion needed to back shares in the SPDR Gold Trust (ticker: GLD).
Despite a small rise in Asian premiums above London’s benchmark gold pricing today, “Consumers are waiting,” Reuters quotes a Singapore dealer, “and are holding off big purchases
“There is no strong demand. There is no shortage in supply so premiums haven’t moved in several weeks.”
Trading action after yesterday’s publication of Fed minutes “highlights that the market is biased towards negative news to push gold lower,” says analysis from Dutch bank ABN Amro.
“In addition, inflation expectations have eased and this has also taken the wind out of gold prices.”
“[Wednesday’s] very low October inflation rate contributed to the gold slide,” says Eugen Weinberg at Commerzbank’s commodities team, “as this causes real interest rates to rise.”
Investors then continued to “sell gold and silver on a grand scale” after the Fed minutes, he adds, even though “the minutes did not actually contain much in the way of news.”
But in truth, reckons economics professor Tim Duy on his Fed Watch blog, “The Fed is desperate to taper,” signalling through Wednesday’s minutes that only communication (the “hot topic” at this month’s meeting) now stands between the central bank and a cut in the monthly sum of quantitative easing.
The Fed “wants to taper,” Duy goes on, “and is becoming increasingly nervous they will need to pull the trigger on that option before the data allows…And that sounds like a recipe for the kind of volatility the Fed is looking to avoid.”
US Treasury bonds fell so hard in price Wednesday, the 10-year yield jumped 0.1 percentage points.
“One of the costs of quantitative easing,” says Duy, “seems to be the inability to exit quantitative easing.”
Meantime in China, now the world #1 consumer market for gold, “It’s no longer in China’s favor to accumulate foreign-exchange reserves,” said Yi Gang, a deputy governor at the People’s Bank, in a speech Wednesday at Tsinghua University.
“We will increase the role of market exchange rates,” his boss, PBoC governor Zhou Xiaochuan said earlier this week, after the much-anticipated 3rd plenum of the politburo, “and the central bank will basically exit from normal foreign exchange market intervention.”
Pegging its Yuan to the US Dollar, the People’s Bank of China has now accumulated more than $3 trillion in FX reserves, parking one-third in US government debt – the largest holding of US Treasury bonds outside the Federal Reserve.
“No superlative,” reckons FX strategist Neil Mellor at Bank of New York Mellon, quoted by the FT’s Alphaville blog, “would overstate [the] significance” of the People’s Bank’s comments.
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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 fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.
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