Gold Bullion "Turnaround Likely Mid-2015" as Fed Looks to Raise Rates, Shanghai Brings FTZ Bourse Forward to Thurs

Tuesday, 9/16/2014 13:33

GOLD BULLION prices ticked higher in London on Tuesday, recovering almost 1% from last week's new 2014 closing low as European stock markets followed Asian equities lower.

Crude oil contracts touched a 1-week high in the US and rose earlier in Europe, but only due "merely to the rollover" from the October expiry to the November contract, says Germany's Commerzbank.

Major government bond prices rose, pushing interest rates down, as the US Federal Reserve began its 2-day policy meeting in Washington – widely expected by analysts to end with a cut to QE asset purchases, plus a "hawkish" tone on when the central bank will start raising rates from zero.

"Looming interest rate rises," says the latest Precious Metals Weekly from London-based consultancy Metals Focus, "will continue to discourage investor buying and may in fact lead to modest selling.

But "the turning point for prices is likely to emerge around mid-2015...perhaps surprisingly [because of] interest rate rises in the US" which are likely to be "only modest and slow," Metals Focus believes.

Short-term, says a technical analysis from French investment bank and London bullion market-maker Societe Generale, prices for gold last week "broke the trend line which was running since last December.

"Although the price action looks weak, daily indicators are at support and could pause a little."

"We remain biased to further downside," agrees SocGen's fellow London market-maker Scotia Mocatta in a technical note. "However, we [also] note that bearish momentum indicators are showing early signs of moderation."

"Interest in the physical market," says the commodity team at Australia's ANZ Bank, "appears to be improving from the key importer of India" after August import data showed a year-on-year jump of 176% in gold inflows by value, rising above $2 billion.

Gold bullion imports to India were effectively blocked by strict rules in summer 2013, sparking a flood of smuggling only tempered when new gold import licenses were extended to so-called "star trading houses" in June.

"Gold imports are likely to pick up even further," says another analyst's note, "in advance of the religious festivals of Dhanteras and Diwali in October."

Over in China – now the world's No.1 gold bullion buyer above India – prices rose less quickly in Shanghai than London today, pushing the premium for wholesale metal delivered in China down to $3.40 from Monday's closing level above $5 per ounce.

The Shanghai Gold Exchange announced it's bringing forward the launch of its international Yuan-gold market – hosted inside the city's free-trade zone – from the end of this month to Thursday, citing the diary schedules of senior officials who will attend.

Six major Chinese banks led by ICBC – the world's largest bank by assets – will provide clearing and settlement services to the Shanghai Free-Trade Zone's new gold trading bourse.

The first 40 approved members of the FTZ gold exchange include London market makers HSBC, UBS and Goldman Sachs.