Gold News

Gold Price Jumps vs. Sinking Euro as ECB's Draghi Boost Equities, But China's Physical Buyers Wary of "Falling Knife"

GOLD PRICES held flat against the Dollar in London trade Thursday, but jumped against the Euro as the 18-nation currency zone's central bank chief detailed the size and time-frame of new QE-style asset purchases.
 
Bouncing from 5-month lows against the Euro, gold recovered two-fifths of the week's earlier 2.8% losses to touch €921 per ounce after European Central Bank president Mario Draghi said purchases of asset-backed securities will last two years, and take the ECB's balancesheet back to 2012's record level of €3.1 trillion ($3.8trn).
 
The single currency dumped more than 1 cent inside 3 minutes as Draghi began his scheduled monthly press conference, while Eurozone stock markets quickly reversed earlier losses but commodities held lower against the rising Dollar.
 
That move in the FX market, says a note from Standard Bank's commodity analysts, "perhaps masked or kept back the expected short-covering [in gold] head of tomorrow's [US jobs] data.
 
"Too many" bearish short sellers are now betting against gold, Standard Bank explains, with the risk of a weak non-farm payrolls report perhaps leading some to close their positions today.
 
"The 'don't catch a falling knife' mentality is [also] keeping physical guys on the side-lines," Standard Bank adds, referring to a well-publicized note from Dutch bank ABN Amro warning that gold prices could fall to $800 per ounce by end-2015.
 
With gold prices already trading at 4.5-year lows against the Yuan as well as the Dollar and Sterling, "Chinese gold buyers," says the daily commodities note from Germany's Commerzbank, "who in the past often took advantage of falling prices as a cheap way of buying into the yellow precious metal, are still biding their time."
 
Today the gold price in Shanghai edged lower again in Yuan terms, but returned to a premium above London quotes by the close of trade, reversing the week's earlier discount suggesting weak demand and ample supply in the world's No.1 consumer nation.
 
New data from world No.4 gold buying nation Turkey today showed gold imports almost halving last month from September, dropping to 6.6 tonnes from 16 tonnes in October 2013.
 
"While prices may fall a little further than we had anticipated in the very near term," says analyst Bernard Dahdah at French investment bank and bullion dealers Natixis, "a floor in gold prices does at last appear to be approaching."
 
That "could result in a stronger bounce later in 2015," Dahdah says, forecasting a possible drop below $1100 per ounce sometime next year, with prices then averaging $1180 in 2016. 
Gold bullion held to back the value of shares in the SPDR Gold Trust (NYSEArca:GLD) – the world's most valuable exchange-traded fund at its peak of 2011 – has so far shrunk 0.9% this week to new 6-year lows, some 45% below the peak by weigh of end-2012.
 
Greenlight Capital, the hedge-fund run by outspoken short seller David Einhorn, lost 3.9% in the third quarter, continuing to count gold as one of its largest holdings alongside Alpha Bank and Apple, says its latest letter to clients.

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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