GOLD PRICES rose slightly on Monday morning in London, as the US Dollar lost earlier gains and European and Asian shares fell, writes Steffen Grosshauser at BullionVault.
Gold traded in a narrow range between $1250 and $1256 per ounce on Monday, after it fell nearly 0.6% to a 1-week low of $1246 last Friday and closed the week at $1251.
"Because the possibility of a December rate hike is increasing, generally, the trend of gold price is downwards but in the short term we think that there could be relatively a mild technical correction," said Jiang Shu, chief analyst at gold mining group Shandong, who sees gold reaching $1270 in the short term before sharply falling back on expectations of a US rate hike.
Bart Melek, head of commodity research at Toronto Dominion Bank, expects gold to dip below $1200 if the Fed raises interest rates, before the metal rallies to levels as high as $1350 again next year.
Federal Reserve President Janet Yellen signalled the needs for aggressive steps to boost the slow economic recovery at the Boston Fed's annual research conference last Friday. Yellen stated that "it is even more important for policymakers to act quickly and aggressively in response to a recession", although she did not provide the Fed's timetable for rates.
"In the Fed's case, this might amount to running the gauntlet of higher inflation with a very slow pace of monetary tightening," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
While speculation of a longer than expected easy monetary policy stance driving the 30-year bond yield to a 4-month high, the US Dollar index, which measures the greenback against a basket of other major currencies, fell slightly back below 98 after it touched 98.16 - the highest it has been since March.
In other precious metals, silver moved around last week's close of $17.42 per ounce while palladium was up around 1% and platinum rose 0.8% after dropping to a 7-month low of $923 last Friday.
Precious metals ETFs saw a strong inflow and the holdings of the world's largest gold-backed ETF, the SPDR Gold Trust (NYSEArca:GLD), grew almost 0.7% to 965.43 tonnes last week.
In contrast, hedge funds and other leveraged speculators reduced their net long positions in Comex gold and silver contracts by further 25% in the week to 11 October - a level last seen in March, as shown by the latest CFTC data.
The London Bullion Market Association (LBMA), the organisation that oversees the wholesale bullion markets in London, joined the Singapore Bullion Market Association (SBMA) and the Intercontinental Exchange Inc. (ICE) in launching a feasibility study on a "Singapore LBMA Pre-AM Gold Price". This was announced by Lim Hng Kiang, minister for trade and industry and deputy chairman of the Monetary Authority of Singapore at the LBMA annual conference in Singapore.
The potential new price would be in addition to the LBMA AM and PM gold price benchmarks which are set in London. This would also close the gap between the closure of the US market and the opening of the London market, which would allow participants in Asia - including top consuming nations like China and India - to trade during their own business hours, reducing the risk of intraday price volatility and facilitating a timely settlement.
ICE which runs the daily London gold auction said it would also launch a London gold daily futures contract in February next year. ICE wants to use the central clearing that is planned to go live next March.