Gold News

Gold Price Near 3-Year Low, "Biased to Negative News" with US Fed "Unable to Taper QE" as China Proclaims End of FX Intervention

The GOLD PRICE retreated Thursday in London back towards last night's new 4-month lows, failing to rally above $1250 per ounce as world stocks markets held flat – and major government bonds continued to slip – following publication of minutes from the US Federal Reserve's last policy meeting.
 
For Dollar investors, the gold price came within 5% of end-June's 3-year low at $1182, and stood only 2% above that level for Eurozone traders.
 
Priced in Pounds Sterling, gold edged back Thursday lunchtime to last night's new 3-year lows at £771 per ounce.
 
Again tracking but extending moves in the gold price, silver failed to hold a brief rally back above $20 per ounce, trading at its lowest Dollar values since early August.
 
"It is difficult to get too bullish on gold...while investors continue to remain bearish," says one Asian bank's dealing desk, noting yesterday's fresh 57-month low in the volume of gold bullion needed to back shares in the SPDR Gold Trust (ticker: GLD).
 
Despite a small rise in Asian premiums above London's benchmark gold pricing today, "Consumers are waiting," Reuters quotes a Singapore dealer, "and are holding off big purchases
 
"There is no strong demand. There is no shortage in supply so premiums haven't moved in several weeks."
 
Trading action after yesterday's publication of Fed minutes "highlights that the market is biased towards negative news to push gold prices lower," says analysis from Dutch bank ABN Amro.
 
"In addition, inflation expectations have eased and this has also taken the wind out of gold prices."
 
"[Wednesday's] very low October inflation rate contributed to the gold price slide," says Eugen Weinberg at Commerzbank's commodities team, "as this causes real interest rates to rise."
 
Investors then continued to "sell gold and silver on a grand scale" after the Fed minutes, he adds, even though "the minutes did not actually contain much in the way of news."
 
But in truth, reckons economics professor Tim Duy on his Fed Watch blog, " The Fed is desperate to taper," signalling through Wednesday's minutes that only communication (the "hot topic" at this month's meeting) now stands between the central bank and a cut in the monthly sum of quantitative easing.
 
The Fed "wants to taper," Duy goes on, "and is becoming increasingly nervous they will need to pull the trigger on that option before the data allows...And that sounds like a recipe for the kind of volatility the Fed is looking to avoid."
 
US Treasury bonds fell so hard in price Wednesday, the 10-year yield jumped 0.1 percentage points.
 
"One of the costs of quantitative easing," says Duy, "seems to be the inability to exit quantitative easing."
 
Meantime in China, now the world #1 consumer market for gold, "It's no longer in China's favor to accumulate foreign-exchange reserves," said Yi Gang, a deputy governor at the People's Bank, in a speech Wednesday at Tsinghua University.
 
"We will increase the role of market exchange rates," his boss, PBoC governor Zhou Xiaochuan said earlier this week, after the much-anticipated 3rd plenum of the politburo, "and the central bank will basically exit from normal foreign exchange market intervention."
 
Pegging its Yuan to the US Dollar, the People's Bank of China has now accumulated more than $3 trillion in FX reserves, parking one-third in US government debt – the largest holding of US Treasury bonds outside the Federal Reserve.
 
"No superlative," reckons FX strategist Neil Mellor at Bank of New York Mellon, quoted by the FT's Alphaville blog, "would overstate [the] significance" of the People's Bank's comments.

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals