Gold News

Gold Price "Faces Critical Week" as Fed Taper, US Budget Deal "Erode Gold Bugs' Faith"

GOLD PRICE gains of 3.1% mid-week were finally erased this morning in London, with gold priced in Dollars trading flat from last Friday at $1228 per ounce after what one analyst calls "a tumultuous few days."
 
Stockmarkets ticked higher but London's FTSE100 headed for a 1.5% drop on the week.
 
Silver tracked the gold price, also erasing its mid-week gain of 5.0% to trade back at $19.55 per ounce.
 
"Given the magnitude" of this week's spike and retreat in the gold price, says brokerage and trading house INTL FCStone, "we think that gold now has a good chance of retesting its 2013 lows before the year is out.
 
"[Gold] may even have a shot of breaking it."
 
"Next week will be a critical time for the precious metal, and the beleaguered gold bugs still keeping the faith," says the note. Because the US Federal Reserve will announce its final policy vote of 2013 next Wednesday.
 
The Fed may start to taper its $85 billion per month of quantitative easing "in the near future," says Commerzbank in Frankfurt, pointing to this week's strong US retail sales data and the federal budget deal between Republican and Democrat politicians – "possibly as early as next week."
 
After the debt ceiling shutdown of October, "A smooth outcome in Washington poses several challenges for gold," reckons UBS analyst Joni Teves, forecasting a stronger Dollar, better economic growth and earlier tapering by the Fed.
 
"Lower gold after the taper, but a collapse is not likely," reckons Bart Melek, strategist at TD Securities.
 
The gold price "should firm due to the Fed’s zero-bound [interest rate] policy," he writes. [Because] this should reduce real yield increases and keep the opportunity cost [of owning gold, and so not receiving interest or dividend payments] from rising too sharply."
 
Reviewing 2013 overall, "The biggest downward pressure on gold this year," says the commodity team at French investment and bullion bank Natixis, "came from talk about Fed tapering and the improving US economy."
 
Furthermore, "Many of the key pillars which had previously supported the gold price began to erode" this year it says, pointing to lower central-bank demand, investment outflows from gold ETF trust funds, and the block on Indian demand due to government anti-import rules.
 
Rising mining costs, however, "will ultimately put a floor under gold prices at somewhere around $1150 per ounce."
 
The gold price bull market "ended in 2011/12," said bullion, retail and investment bank HSBC's Charlie Morris, head of absolute return at the Global Asset Management division, to CNBC yesterday.
 
"There was a very clear top, and we're now in a very clear bear market. We continue to believe that gold is going down."
 
The last 5 bear markets in gold, says Morris, have cut price by 48%. "That takes us down to $950 or $1000 level."

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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