Gold News

Gold Bullion Eases After 2-Year Record Jump, Short Interest Evaporates, But Fed's Yellen Says 'Rate Hike Coming by Year-End'

GOLD BULLION held around $1145 per ounce late Friday afternoon in London, nearing its second weekly gain in a row but trading $10 below yesterday's 1-month high as Western stock markets rose sharply following new comments on US interest rates from Fed chair Janet Yellen.
 
Bloomberg News meantime reported a private letter from mining-backed market development organization the World Gold Council, plus 5 banks, advising trade body the London Bullion Market Association that they are "assessing" the merits of exchange-traded contracts and centralized clearing for the wholesale gold market – estimated to turn over $60 billion per day.
 
Heart of the world's market in large, wholesale bars, London's bullion trade today remains an 'over-the-counter' market, with buyers and sellers dealing directly with each other and so needing to research the other side's financial stability and establish credit lines.
 
Settlement of physical bullion trades typically take 2 working days.
 
Of the 5 banks named, three are direct participants in the electronic LBMA gold price benchmarking auction, four are market-making members of the Association, but none are vault operators or clearing members.
 
"That [only] five banks out of 18 asked have signed this letter shows we are a long, long way from any agreements," Bloomberg quotes London precious metals head David Govett at broker Marex Spectron.
 
As for Thursday's 2% surge – the second such rise in a week, something not seen since gold prices found a floor in summer 2013 following their worst quarterly drop in 3 decades – "There seemed to be genuine buying under the market all day," says Govett, "which caught a lot of people short and with the mentality of selling rallies, kept catching them short."
 
Surging 140% in the back-half of August, short interest in the iShares Gold ETF (NYSEArca:IAU) shrank 17% in the two weeks ending 15 September, according to data posted by the Wall Street Journal.
 
Short interest in the larger SPDR Gold Trust (NYSEArca:GLD) shrank 10% over the same first half of September. This week the put-to-call ratio on GLD shares – meaning the number of bearish options bets as a ratio of bullish bets – fell to its lowest in 3 years, according to a separate Bloomberg report.
 
"Some folks are starting to really worry about whether the Fed rates will raise rates this year," reckons a quantitative strategist at the $1.6 trillion Wells Fargo Investment Institute.
 
"You [have] probably got a little bit of room for gold to stage a counter-trend move higher" if the US Federal Reserve again delays its long-awaited 'lift-off' from the 0% interest rate now set since end 2008.
 
Following last week's surprise 'no change' decision, Fed chair Janet Yellen said Thursday that "Most FOMC participants, including myself, currently anticipate [a] likely...initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.
 
"But if the economy surprises us, our judgments about appropriate monetary policy will change."

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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