Gold News

Gold Price Drops Hard as Euro Rallies from QE Plunge, Western Traders Bullish as Physical Asian Demand 'Non-Existent' at 'Crucial $1300' Level

GOLD PRICES fell hard from new multi-month highs Friday afternoon in London, dropping as the Euro currency rallied from new 11-year lows following yesterday's news of €1.2 trillion of QE bond purchases by the European Central Bank.
 
With new data showing weaker than forecast US home sales and manufacturing activity in December, gold's drop cut this week's Dollar gains to 0.6% after failing to re-take $1300 per ounce.
 
Gold priced in Euros sank more than 2% from new 21-month highs near €1170 per ounce.
 
Eurozone stock markets extended their rise, with Frankfurt's Dax hitting new all-time highs.
 
German 10-year Bund prices meantime rose so high, the annual yield offered to new buyers fell to 0.38%.
 
Yields on 10-year Swiss government bonds fell further into negative territory, costing new buyers 0.25% of their capital per year.
 
"QE's mission has already been accomplished in the bond market," says US economist and investment strategist Ed Yardeni.
 
Despite the plunging currency, "It's not obvious that QE will revive inflation in the Eurozone," Yardeni goes on. "It didn't do so in the US. [Also see] Japan’s recent disappointing experience."
 
"The Euro's dramatic slump," says a note from the commodities team at Commerzbank in Frankfurt, "is continuing to drive up the gold price in Euros."
 
But Thursday's action, it adds, also "proved gold is well able to hold its own despite the massive appreciation of the US Dollar, even rising to a five-month high of $1310."
 
Yesterday's daily close in Comex gold futures contracts was " above the crucial 1300 level," says a technical analysis from bullion market-maker Scotia Mocatta's New York office, "provid[ing] further confirmation of the recent rally.
 
"The focus now turns to 1320...Support is expected at 1275."
 
Data from Reuters said Friday that bullish calls, giving traders the right to buy gold cheaper if prices rise, now account for well over 80% of all Comex gold options on February and March contracts.
 
Exchange-traded gold trusts – a major vehicle for mutual funds and money managers to gain exposure to gold at cash prices, without leverage – meantime swelled again yesterday.
 
European gold ETFs added another 3 tonnes, while the giant US-listed SPDR Gold Trust (NYSEArca:GLD) held flat at 740 tonnes altogether.
 
"Surprisingly quiet market," says London bullion dealers Standard Bank – now a division of China's ICBC.
 
"Physical demand [from Asia] non-existent. Seeing largely selling interest still with discounts widening."
 
Discounts to world prices in India – the world's No.1 consumer nation – widened again to fresh 17-month records on Friday at $15 per ounce, as weak demand met large stockpiles built by retailers before the start of the year.
 
Easier import rules saw a surge in gold inflows to India in November and December. But now, with the Hindu wedding season about to recommence, imports so far in January may have fallen 50% or more, the Business Standard quotes "a person working closely with gold importing agencies.
 
"Discounts also make smuggling less attractive."
 
Over in China – the world's No.1 consumer nation in 2013 – Shanghai gold prices pushed higher in Yuan terms on Friday.
 
But their premium over Dollar-equivalent London quotes fell to $0.75 per ounce, down from $3.65 at the start of this week and offering an incentive to importers less than one-fourth the last 3 months' average.

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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