Gold News

Gold Prices Drift as Fed Lift-Off Forecasts Cut to 1/8th of a Percent, 'Relief Rally Possible' But China's Traders 'Unconvinced'

GOLD PRICES held in a tight range again on Tuesday, drifting around $1105 per ounce as European stock markets shrugged off another sharp drop in Chinese equities to follow a strong 1% opening in US shares ahead of this week's key Federal Reserve decision on interest rates.
 
"Let's get it out of the way," Wharton finance professor Jeremy Siegel told CNBC, suggesting that the Fed could raise by 1/8th of a percent on Thursday – rather than the 0.25% expected – to avoid gauge the stock market's reaction.
 
Economists from European banks ING Bank, UniCredit and VTB Capital also think Fed 'lift off' could reach just 0.125% for fear of denting asset prices, according to Bloomberg.
 
US Treasury bonds edged lower in price as stocks rose Tuesday, pushing 10-year yields up to 2.22% – near the highest interest rates in a month, but unchanged from the end of last year.
 
"Just get on with it!" urged stockmarket bear Albert Edwards, strategist at investment bank Societe Generale in a note last week, again forecasting "[a] coming deflationary bust whether the Fed hikes or not."
 
Commodity prices were broadly flat on Tuesday, with silver softer than gold prices and re-touching last Friday's 2-week low at $14.30 per ounce.
 
The giant iShares Silver Trust (NYSEArca:SLV) closed Monday needing 9,981 tonnes to back its exchange-traded shares – the silver ETF's lowest level since early June.
 
Bullion holdings for the giant gold ETF, the SPDR Gold Trust (NYSEArca:GLD), remained at 678 tonnes for the fifth session running, down by 1 ounce in 8 from late-February's sudden spike and barely 10 tonnes above early-August's new 8-year lows.
 
"A no-hike decision could spark something of a relief rally across precious metals if the Dollar and Treasury yields drop back," reckons precious metals analyst Jonathan Butler at Japanese conglomerate Mitsubishi.
 
"A lack of a conviction in gold among Chinese investors will continue for some time," says consultancy Metals Focus in their new Precious Metals Weekly, "due to US interest-hike expectations."
 
Looking at India – the world's No.2 gold buying nation after China in 2014 – the government's decision to involve banks and refiners, rather than the jewelry industry, "could materially affect the success" of new schemes aimed at mobilizing some of the country's huge private gold holdings to reduce its heavy imports bill.
 
"While too early to judge the possible success," says Mitsubishi's Butler of India's bank deposit and gold-price linked bonds schemes, "it would seem likely that they will simply reinforce the historic and cultural popularity of physical gold, and therefore have little impact on the volumes of gold imported in the short to medium term."

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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