London Gold Market Report
from Adrian Ash
Weds 18 Dec 08:50 EST
The US DOLLAR price of gold held flat Wednesday morning, ticking above $1230 per ounce in very quiet trade ahead of today’s much-awaited decision on monetary policy from the US Federal Reserve.
Starting to cut its $85 billion in monthly asset purchases is a 60% shot today, says Mohamed El-Erian, CEO of the giant Pimco asset-management company.
A poll by Bloomberg in early December found only 1-in-3 economists thought the reductions would start today.
Reuters last week said half of 60 analysts it surveyed think the Fed won’t start tapering until March, when new chair Janet Yellen will replace Ben Bernanke.
“Precious metals are [meantime] continuing their rollercoaster ride,” says a note from Commerzbank.
This week so far has seen a 2.5% trading range in gold and 4% in silver.
“Gold price action of late,” says UBS analyst Joni Teves, “has been driven by the cross-currents of short-covering and lingering interest to sell rallies, which have contained prices within a $60-range over the past few weeks.”
“There continues,” agrees Japanese trading house Mitsui’s Singapore desk, “to be a lack of positive catalysts for gold prices to rally, and many [participants] remains convinced of selling into the short covering rallies.”
“The bear trend remains in place,” concludes London market maker Scotia Mocatta’s latest technical analysis of price charts.
“Thus there is still risk of a test of the major $1180 low” hit at the end of June.
Looking ahead to Wednesday’s key US central-bank decision, “There is little reason for the Fed to delay tapering,” reckons Deutsche Bank’s chief US economist Joseph Lavorgna, quoted by Bloomberg and citing strong jobs data and GDP growth above 3%.
But while “there’s no doubt that the doves feel more comfortable,” counters RBS Securities’ economist Guy Berger in Stamford, Connecticut, “it’s certainly not enough that it makes you think [it’s] is imminent.”
“We suspect,” says broker-dealer INTL FCStone in a note “that most markets have discounted the Fed’s tapering to start sooner rather than later.
“But we still expect gold to be on the defensive given its poor chart picture and the lack of any support…from increased investment or physical buying.”
Giant gold ETF trust fund SPDR Gold yesterday shed another 2 tonnes of bullion from the metal needed to back its shares, dropping to a new 5-year low beneath 817 tonnes and extending this year’s decline from record-high levels to 40%.
“Despite the decline in ETF holdings,” says ANZ Bank, “some support for gold was found from Asian buyers at the $1230 level.”
For Western investment managers, says the Buttonwood column at The Economist, “Gold’s resurgence may require a moment when central banks explicitly agree to a higher inflation target or when they declare that inflation is now subordinate to their unemployment mandate.”
“That moment may yet come.”
US inflation was last pegged at 1.2% on the headline CPI measure. The Fed has restated its target of 2.0% throughout 2013.
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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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