Gold News

Upturn in US Inflation Sees Gold Price Near 3-Month Low, Indian Discount Narrows on 'Record' Harvest

GOLD PRICES retreated near 3-month lows in London on Friday, rallying just $2 per ounce from $1306 as world stockmarkets fell with commodities following stronger-than-expected US inflation data ahead of next week's Federal Reserve interest-rate decision.
 
The Bank of Japan also meets to announce policy next Wednesday, with analysts split over whether it will expand or reduce its sub-zero rate and QE asset purchase programs after two decades fighting negative inflation and poor economic growth.
 
US consumer prices, excluding energy and food costs, rose 2.3% in August from 12 months before, matching February's 4-year high.
 
Chart of US CPI annual inflation, minus food and energy costs. Source: St.Louis Fed
 
European equities lost 1.5% for the day, heading for their worst week since May, while US crude oil contracts fell to 1-month lows beneath $43 per barrel.
 
Silver followed gold prices lower, dipping below $18.70 per ounce to trade over 7% beneath last week's 1-month high.
 
Major government bond prices held firm however, keeping 10-year US Treasury yields below this week's new post-Brexit high of 1.73%.
 
"Uncertainty is likely to continue to breed volatility until after the Fed and BoJ meetings," said a note Thursday from precious metals strategist Tom Kendall at Chinese-owned investment and bullion bank ICBC Standard in London.
 
"Once those are out of the way...a relief rally in fixed income seems far more likely than a descent into the abyss. In which case gold should be lifted as real yields slip lower once again."
 
"All other things being equal," agrees a note from the precious metals analysts at investment and bullion bank HSBC, "a decline in rate-hike expectations should be bullish for gold.
 
But that means the last 2 days' "drop in [bond] yields should have supported gold more than it did...[suggesting] there is more to gold's sluggishness.
 
"Some of this," says HSBC, "may be traced to weak physical demand" from key gold-consuming nations.
 
Gold imports to Turkey – formerly the world's No.4 heaviest buyer, but now behind Germany – almost halved in July from June, said data this week from Borsa Istanbul, "down over three-fold from 15.1 tonnes a year earlier" notes specialist news and data providers Platts.
 
Gold imports to India – formerly the world No.1 but now behind China as the government launches a raft of schemes to deter household demand – meantime showed a 77% slide in August from 12 months before in US Dollar terms, the Press Trust reports, totaling only $1.1 billion.
 
"Total official gold imports declined to 60 tonnes in April-July," the PTI adds, "much lower than 250 tonnes in the year-ago period."
 
This year's monsoon rains – a key driver of rural incomes through crop yields – are now heading away from the subcontinent after reaching 95% of average levels.
 
"Two consecutive years of deficient monsoon rainfalls have taken their toll on...rural spending," noted market-development organization the World Gold Council in its latest global demand trends report.
 
This year's improved rainfall "is good news for farmers," agriculture minister Radha Mohan said at a press conference yesterday.
 
"I am sure we will have record production this year."
 
"[Gold buying] enquiries are increasing and volumes sold are picking up, but remain limited," Platts quotes a dealer in the major import point of Ahmedabad, adding that domestic gold prices – relative to international quotes – have risen in southern Indian states to a discount of just $7 per ounce.
 
Over-supply and poor demand saw Indian gold prices – most typically quoted at a premium to London wholesale bars – trade at what the Reuters news-wire called a "record" discount of $100 per ounce in July.

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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