Gold News

Gold Price Erases 1.3% Plunge to 3.5-Month Low Ahead of US Fed 'Patient' Decision

GOLD PRICE losses of 1.3% to new 3.5-month Dollar lows were erased inside 25 minutes Tuesday lunchtime in London, with the metal leaping after weaker-than-forecast US data ahead of tomorrow's much-anticipated Federal Reserve policy statement.
 
The gold price jump briefly touched $1158 per ounce – unchanged for the week so far – following news that new US housing construction was the weakest last month since November 2013.
 
With the US Fed starting its two-day meeting in Washington, China's main stock market meantime hit a 7-year closing high, and Japan's Topix matched London's FTSE-100 in finally recovering 1999 levels.
 
But Eurozone stock markets then fell heavily from an early high, with Germany's Dax losing 1.8% from yesterday's fresh all-time record.
 
The Euro currency stalled after bouncing 1.5 cents above Monday's new 12-year low against the Dollar, slipping back from $1.0640 and reversing a sharp drop in the gold price to 1-week lows at €1075 per ounce.
 
US crude oil's drop to $43 per barrel pulled broader commodity indices 1% lower in Dollar terms.
 
"Were the Fed to drop the 'patient' language, accompanied by stronger ‘hawkish’ signals," says the interest-rate research team at Lloyds Bank in London, "a larger and more sustained bear-flattening may ensue" in US bond yields, with short-dated debt falling hard in price.
 
"Failure to remove the 'patient' wording, or a more dovish than expected stance from the Fed," counters precious metals analyst Jonathan Butler at Mitsubishi, "could see a knee jerk higher in gold and a resulting squeeze in short positioning in precious metals, which currently looks overextended."
 
"The potential impact of short position holders in the Dollar," adds Standard Bank in London, "combined with new shorts in gold, [are] perhaps increasing the risk of a short covering rally...[sparked by] pretty good physical demand at the moment from India."
 
Looking at physically-backed trust funds, the major gold ETF – the SPDR Gold Trust (NYSEArca:GLD) – held its physical backing unchanged at 750 tonnes on Monday.
 
"With quantitative easing getting underway in Europe," says bullion bank Scotia Mocatta's latest monthly gold price report, "it will be interesting to see if there is more uptake in European gold ETFs."
 
But major European trust-product provider ETF Securities yesterday said its gold funds last week saw the largest outflows "since inception" according to Reuters.
 
New data today showed economic sentiment in Germany rising again last month, but missing analyst forecasts of a big jump.
 
"Most indicators suggest a sustained economic recovery...which the ECB helped generate...is taking hold," said Mario Draghi – president of the European Central Bank, which has now taken its key deposit rate below zero and begun spending €60 billion per month on QE asset purchases – in a speech last night.
 
The Bank of Japan today held its zero-rate and $660 billion-per-year QE policies unchanged.
 
Minutes from the Reserve Bank of Australia's latest policy meeting showed its members willing to cut rates next month if economic data don't improve.

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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