Gold News

Gold Bullion a 'Simple Short' at $1220 on US Fed But Deflation Hits UK, Japan, 'Uncertainty Supports'

GOLD BULLION erased most of yesterday's 1.8% gain versus the Dollar on Wednesday in London, falling against all major currencies except the British Pound as world stockmarkets held flat but US bonds slipped ahead of today's release of minutes from the US Fed's latest policy meeting.
 
Edging back to $1220 per ounce, gold bullion first recovered this level as a 9-month high in early February.
 
"Short gold," says US investment bank and London bullion market maker Goldman Sachs' analyst Jeff Currie, asked by CNBC to name one simple commodities trade right now.
 
"Market is pricing in one rate hike [for 2016], Fed has signaled two, data is signaling three.
 
"Put that together, the market needs to trade interest rates higher. What do higher interest rates typically do to gold? Send it down."
 
"The 50-day moving average is currently sitting around $1220," said the Asian trading desk of Swiss refiner and finance group MKS overnight, "and should act as the first major support.
 
"Below this $1215 will be a key level."
 
With the Yen rising Wednesday near fresh 18-month highs against the Dollar meantime, gold bullion prices for Japanese investors have now retreated more than 7% from early March – the same percentage lost by the Nikkei 225 share index.
 
The British Pound meantime fell back to $1.40 against the Dollar today,  approaching February's 7-year lows after new data said UK retail store prices fell 1.7% annually in March, with non-food prices deflating for the 36th month in a row.
 
That buoyed gold bullion prices for UK investors near £870 per ounce, the highest price in 2.5 years when first reached in early February.
 
With consumer prices in Japan – the world's fourth largest economy – now struggling to hold higher  levels reached in late 2008, "The effect of negative interest rates is very strong," claimed Tokyo's chief central banker, Haruhiko Haruda, to parliament yesterday, vowing to " steadily proceed with this policy."
 
But Kuroda's comment "seems to have hardly had any impact in checking the currency’s ascent," says the daily bullion and commodities note from US brokerage INTL FCStone,
 
As for gold, and "despite Tuesday's modest bounce...we have not changed our view and suspect that prices could resume their downturn," says the note.
 
"[But] there appears to be enough uncertainty to prop up gold," counters bullion bank HSBC's latest gold note, "and the financial markets are no longer focused on the possibility of a near-term Fed rate hike.
 
"This relieves gold of a major weight, at least for the moment."
 
Fresh negotiations over the Eurozone-IMF bail-out of Greece's government meantime hit yet another impasse overnight, as German chancellor Angela Merkel said there can be no cuts to Athens' existing bond repayments, while the IMF's Christine Lagarde said the south-east Eurozone state must enjoy some form of debt relief from its creditors.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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