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."