Gold News

Gold Bullion Hits Lowest Since Oct 2009 as US Fed Rate Rise Hits Euro, Commodities Erase 21st Century Gains

GOLD BULLION in London's wholesale market sank almost 2% to its lowest price since end-October 2009 on Thursday, dropping as world stock markets rose with the US Dollar after the Federal Reserve finally raised its key interest rate from zero after 7 years.
 
US crude oil contracts fell below $35 per barrel, pulling the GSCI index of natural resources down to erase the last of its entire 21st century gains, some 80% below the peak of 2008 on a total returns basis.
 
Gold's benchmark pricing auction – formerly called the Fix and now the LBMA Gold Price – found a new 6-year low at $1049.40 per ounce on solid selling volume.
 
Priced in Euros, gold held firmer above €970 per ounce – little changed for 2015 to date – as the single currency retreated to $1.08, near its weakest FX rate of December.
 
The Euro one year from now was today quoted below parity with the Dollar by one major London bank's forward swap rates – a level not seen in the spot FX market since 2002, only 3 years after the single currency was launched at a rate of $1.18.
 
Silver bullion also fell in London, losing 4.5% from Wednesday's brief 1-week high – hit amid volatility straight after the Fed rate announcement – to trade back at $13.70 per ounce, a new 6-year low when first reached on Monday.
 
London benchmark gold bullion price, 2009-2015
 
"In 2015," says French investment and bullion bank Natixis, "the price of gold was mainly driven by 'when' the first [US Fed] interest rate hike would take place.
 
"Higher interest rates mean a higher opportunity cost of holding gold...[and] as that cost increases we do not see support for higher [bullion] prices coming from any of the main fundamentals that were previously driving gold."
 
2016 institutional investment demand through gold ETF trust funds will remain poor, Natixis predicts, while gold imports to China will still lag the 2013 record and Indian demand won't match pre-2014 levels unless import duties are cut.
 
New rules in India forcing declaration for tax purposes of any gold purchase above 2 lakh Rupees (US$3000) risk hurting household bullion and jewelry demand badly, the All India Gem & Jewellery Trade Federation said today, with GTF chairman Sreedhar G.V. calling the move "discrimatory" because "70% of the rural buyers including farmers are not under the tax net and do not have PAN [tax account] cards."
 
Central-bank demand for gold bullion will meantime stay weaker in 2016 than the 2009-2013, Natixis says, with major mine-producer nations led by China and Russia accounting for the bulk of official sector purchases.
 
Gold bullion imports to Turkey – formerly the world No.4 consumer market, but now behind Germany – fell almost 95% last month from November 2014, data quoted by Reuters from Borsa Istanbul said Thursday.
 
New US data meantime showed the world's largest economy running a 7-year record current account deficit in the third quarter of 2015, effectively owing the rest of the world an extra $124 billion – some 10% higher from Q2's addition.
 
The monetary authorities in Hong Kong – who peg the HK Dollar to the US currency – today raised their benchmark interest rates to match the Fed's decision from Wednesday.
 
Taiwan's central bank, on contrast, cut its key lending rate to 1.625%, surprising analysts who had expected it to hold 25 basis points above the all-time 2010 low.

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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