Gold News

Gold Price "Back to Status Quo" Say Analysts as "Fed Fever Breaks", Reprieve "Only Temporary"

GOLD PRICE losses of 1% were reversed Monday morning in London, with silver also rising back to last week's finish and erasing an earlier 2% drop as world stock markets slipped with commodities.
 
German Bunds held flat, but the Euro currency dropped half-a-cent to a 3-session low after Angela Merkel was returned as German chancellor in national elections.
 
"Fed fever has broken," said one floor trader quoted by CNBC on Friday, with the gold price and other markets performing what another broker calls "an incredible about-face" at the end of last week to erase Wednesday's sharp gains after the US central bank held its QE money printing program unchanged.
 
Longer-term – and blaming late-August's news from Syria for gold's 9-week rise starting end-June – "We expect market cheer will be capped and a return to status quo," says Citigroup in a widely-cited report.
 
"The postponement of the [QE] tapering decision by the FOMC represents only a short-term reprieve for gold," Citi's analysts go on.
 
"Does this mean the end of the downtrend in the gold price? In our view, the fundamental and clear answer is no."
 
"While any further postponement," agree Morgan Stanley analysts, "would likely continue to benefit gold prices in the near term, we still think it is just delaying the inevitable.
 
"The longer-term narrative for gold remains in place – waning investor appetite for a risk and inflation hedge, challenged physical demand and a rising US Dollar."
 
Morgan Stanley now sees the gold price trading in a range from $1200 to $1350 to year-end, before falling further in 2014.
 
Citi sees the gold price averaging $1250 per ounce across full-year 2013. It has so far averaged $1460.
 
The bank's analysts meantime forecast an 11% rise in the S&P500 index by New Year.
 
Speculative traders using futures and options cut their bullish bets and grew their bearish bets on the gold price last week ahead of the US Fed's "no tapering" surprise.
 
Latest data from US regulator the CFTC put the "net long" position of these non-industry traders equal to 292 tonnes last Tuesday – barely 51% of the last 5-year average.
 
So-called "small speculators" – meaning private individuals and other 'unreportable' positions – meantime cut their net long on gold futures and options to the equivalent of just 25 tonnes.
 
That was barely one fifth of their 5-year average.
 
"The Fed's decision to continue with an ultra-accommodative monetary policy arguably paves the way for a rebuilding of long positions after the recent short covering," says Mitsubishi analyst Jonathan Butler.
 
Short-term, he adds, "Trading should be choppy as investor sentiment alternates between tapering (negative for gold) and the impending US debt ceiling (positive for gold)."
 
Moreover, the next week brings the end of September and so the end of the third calendar quarter. So "few people will want to establish fresh longs right now," reckon brokers Marex in a note.

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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