Gold News

Gold 'Risks ETF Sell-Off' at $1000 as Saudis Try to Boost Oil Price, US Fed Split Over 2% Inflation

GOLD PRICES retreated near last week's new 5.5-year lows in Asian and early London trade Monday, holding above $1065 per ounce as crude oil bounced hard from near 6-year lows following a surprise announcement from major Opec cartel member Saudi Arabia.
 
Silver also rallied, reversing 2% losses to new 6-year lows beneath $14 per ounce, after the Saudi government said it is "willing to co-operate" with other oil-producing nations to "stabilize prices".
 
With US futures and options speculators growing their bearish bets against crude oil however, the price then fell hard, dropping once more towards the summer's new 6-year lows at $40 per barrel.
 
The US Federal Reserve – all set according to 3 members over the weekend to vote for "lift-off" from 7 years of zero rates in mid-December – should meantime wait for inflation to strengthen, said 'dovish' US Fed governer and voting member Daniel Tarullo in an interview Monday.
 
"When we do raise rates, it will be particularly important to be watching carefully for the effect on inflation, and whether the expectations that inflation will continue to rise back to 2% is being met or not being met."
 
The Bloomberg Commodity Index (BCOM) suffered its worst quarterly drop since the 2008 financial crisis between July and September, the news and data provider said in a new report at the weekend, losing 14.5% "amid forecasts for the slowest economic growth since 1990 in China, the biggest user of energy, metals and grains."
 
"Expectations for a US rate rise in December remain strong," says the Asian dealing desk at Japanese conglomerate Mitsui's precious metals division.
 
"There is a band of resistance between $1079 and $1086. The market still remains vulnerable to further moves lower, with support at $1030-42."
 
Last week saw the giant SPDR Gold Trust (NYSEArca:GLD) shrink once again, down for the 5th week in succession as stockholders liquidated shares and the volume of gold needed to back the product fell to 660 tonnes – its smallest holding since the week of Lehman Brothers' collapse in mid-September 2008.
 
Silver's largest ETF in contrast – the iShares Silver Trust (NYSEArca:SLV) – added metal to reach a 9-week high of 9,897 tonnes.
 
Across all exchange-traded gold products, "We see the risk of accelerated selling...if prices move below $1000 per ounce," says a note from investment and bullion bank Barclays Capital.
 
"There [was] a large block of shares purchased between $900 and $1000 per ounce," BarCap goes on, saying that since the price crash of 2013, its analysts "have seen matching amounts between the amount of gold redeemed and purchased [earlier] in the same price bracket."
 
Barclays say the volume at risk on a gold price drop from $1000 to $900 "totals 716 tonnes by our estimation." 
 
US Dollar gold price vs. US consumer price inflation
 
Data from the St.Louis Fed show how Dollar gold prices first rose towards and broke above $1000 per ounce as US consumer-price inflation whipped between 5.6% and minus 2.1% per year.
 
Priced in Chinese Yuan meantime, gold lost almost 1% in brisk trade on the Shanghai Gold Exchange on Monday, but that extended the main contract's premium – over and above comparable London quotes in Dollars – to the equivalent of almost $5 per ounce, twice the last 12 months' average.
 
The drop in crude oil prices, Bloomberg News reports separately, has wiped $25 billion off corporate earnings for S&P500-listed stocks so far this year, a drop of 3% overall, as earnings in the oil-producer sector sank 57%.

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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