Gold News

Gold Falls 3rd Day, Bullion Offers 'Cheap Insurance' as S&P Jumps 9% for Oct. Despite Profit Warnings

GOLD BULLION fell for a third day running in London trade Friday, sliding to dip below $1140 per ounce for the first time in 3 weeks as the Dollar fell after weak US income, spending and inflation data.
 
Silver also slipped again, dropping 5% from Wednesday's sudden 4-month highs to trade at $15.51 per ounce of wholesale bullion.
 
The Chinese Yuan had earlier made its sharpest 1-day rise versus the Dollar since onshore trading began in 2005, with the Financial Times pointing to expectations it will be approved for the IMF's basket of reserve currencies in November.
 
Shanghai gold prices held firm, however, with premiums above benchmark London quotes ending the week at $1.50 per ounce.
 
US Treasury bond prices meantime recovered the week's earlier loss, and New York's S&P500 index of US equities held on track to end October 9% higher, its best monthly gain in four years according to MarketWatch.
 
October however brought profits warnings across US industry, including from publishing-software business Adobe (Nasdaq:ADBE), retail giant Wal-Mart (NYSE:WMT), and heavy construction-equipment manufacturer Caterpillar Inc.(NYSE:CAT).
 
"Buying in most of the [Asian] region is picking up," a gold dealer in Singapore told Reuters earlier. "Not a lot, but we are seeing small quantities moving."
 
For traders and investors, "The short-term outlook for gold is somewhat negative," reckons a note from US brokerage INTL FCStone, "as the [precious metals] complex faces headwinds of a rising Dollar, a more 'antagonistic' Fed, a surging US equity complex, and deteriorating chart patterns."
 
Having broken above its 2015 downtrend in October, gold prices turned south on Wednesday from just above $1180 per ounce – the previous "crash" low from 2013, when gold sank 25% inside 3 months.
 
Gold price in US Dollars per ounce, 2015 downtrend and 2013 crash low
"Negative sentiment has been building since Wednesday's FOMC meeting," agrees Swiss refinig and finance group MKS's Asian trading desk, "with participants increasing their expectations for a December rate hike."
 
But looking at the broader financial outlook, "We have been keen observers of the growing market distortions created by global monetary policy," says Gareth Lewis, chief investment officer at £1 billion manager TilneyBestinvest ($1.5bn), telling What Investment why he's added gold to the group's multi-asset funds.
 
"Gold has a low correlation with other risk assets and serves as a form of insurance. With low and even negative real interest rates, the opportunity cost of us providing this protection is low."
 
Friday's 3pm benchmark gold price auction in London attracted the strongest demand for any afternoon session this week at an opening quote of $1140.60, before finding a clearing price at $1142.35 per ounce – some 2.5% above September's last gold bullion benchmarking.
 
Meantime in India – the world's largest gold consumer nation again in Q3 by overtaking China, according to specialist analysts GFMS – the government today announced a 2.75% interest rate on its forthcoming 'gold bond' promotion to investors, aimed at reducing the country's heavy imports bill by directing bullion demand into banking products instead.
 
Any gains paid to reflect a rise in gold prices, however, will be subject to capital-gains tax, potentially denting uptake of the new products, says The Financial Express.
 
Mid-way through the current tax year, the government has already used 68% of its planned deficit between receipts and expenses, the Economic Times reports.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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