Gold News

Gold Price Erases March's 5% Gain as Fed "Signals Endgame for Easy Money", Dollar Jumps

GOLD PRICE gains of 5% in March were erased by Thursday lunchtime in London as all asset prices fell against the US Dollar after the Federal Reserve was seen signaling "the endgame for easy money" as the Financial Times put it.
 
"The Fed meeting certainly injected uncertainty into gold prices," says George Gero at RBC Wealth Management.
 
Trimming another $10 billion from its monthly QE asset purchase program – but still "printing" $55bn in April, greater than the annual economic output of Bulgaria – the Fed also updated its economic projections, trimming the upper end of both its GDP and jobless-rate forecasts.
 
US equity markets fell hard late Wednesday, with world stock markets following on Thursday.
 
The gold price traded as low as $70 beneath Monday's 6-month high of $1392 per ounce.
 
Silver followed and extended the drop in gold bullion prices, losing 7.5% from last week's spike to dip below $20.20.
 
"The gold price remains under pressure amid profit-taking," reckons Germany's Commerzbank, widely reported to be expecting $1400 gold at year-end.
 
But despite "the shift in investor sentiment and gold's bullish breakout since the beginning of the year," counters precious metals analyst Robin Bhar in the latest Commodities Outlook from French investment bank and London bullion market-maker Societe Generale, "we continue to remain bearish about the gold price."
 
Raising SocGen's 2014 average gold price forecast from $1135 to $1180, but cutting his 2015 outlook to $1075 from $1100 per ounce, "The change in US monetary policy will continue to weigh on investor sentiment in the medium term," says Bhar, "as the US Federal Reserve continues to trim its stimulus measures and rate hikes start in mid-2015 amid stronger economic recovery."
 
The Euro currency meantime lost 1.5 cents against the Dollar from before the Fed's announcement.
 
The British Pound sank to 5-week lows beneath $1.65, and China's Yuan fell to a new 11-month.
 
China's Shenzen stock market lost 2.6% to hit last week's 2-month lows.
 
Prices at the Shanghai Gold Exchange fell hard on strong trading volume, but cut their discount to international prices to $5 per ounce from this week's multi-year record of $8.
 
Scrapping its previous 6.5% unemployment rate target for any discussion of raising interest rates, the Federal Reserve yesterday repeated its key promise of "maintain[ing] a highly accommodative stance of monetary policy...for a considerable time" after ending QE.
 
But while only one Fed policymaker now sees 2014 as "appropriate" for starting to hike interest rates – with 13 of the other 15 looking to 2015 – only 6 members of the FOMC now foresee US rates below 1.0% by the end of next, down from 10 members at the December meeting.
 
Ten-year US Treasury bonds fell in price, pushing the annual yield they offer 10 basis points higher to 2.78%, near 2014 highs and the widest spread since 2010 over comparable German, Japanese and other major economy debt, according to Bloomberg.

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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