Gold News

Gold Price Seen Volatile on US Fed Tapering Vote Today, "Still on Defensive"

The GOLD PRICE held flat in US Dollars Wednesday morning, ticking above $1230 per ounce in very quiet trade ahead of today's much-awaited decision on QE tapering from the US Fed.
 
Tapering is a 60% shot today, says Mohamed El-Erian, CEO of the giant Pimco asset-management company.
 
Only one-in-three economists polled by Bloomberg in early December see the Fed tapering some of its $85 billion in monthly QE asset purchases at this month's policy meeting.
 
Out of 60 analysts surveyed last week by Reuters, just over half said Fed tapering – widely seen as the major catalyst for 25% gold price losses in 2013 – won't start until March, when new chair Janet Yellen will replace Ben Bernanke.
 
"Precious metals are [meantime] continuing their rollercoaster ride," says a note from Commerzbank, pointing to this week's 2.5% trading range in the gold price and 4% range in silver.
 
"Gold price action of late," says UBS analyst Joni Teves, "has been driven by the cross-currents of short-covering and lingering interest to sell rallies, which have contained prices within a $60-range over the past few weeks."
 
"There continues," agrees Japanese trading house Mitsui's Singapore desk, "to be a lack of positive catalysts for the gold price to rally, and many [participants] remains convinced of selling into the short covering rallies."
 
"The bear trend remains in place," concludes London market maker Scotia Mocatta's latest technical analysis of gold price charts.
 
"Thus there is still risk of a test of the major $1180 low" hit at the end of June.
 
Looking ahead to Wednesday's key US central-bank decision, "There is little reason for the Fed to delay tapering," reckons Deutsche Bank's chief US economist Joseph Lavorgna, quoted by Bloomberg and citing strong jobs data and GDP growth above 3%.
 
But while "there's no doubt that the doves feel more comfortable with tapering," counters RBS Securities' economist Guy Berger in Stamford, Connecticut, "it's certainly not enough that it makes you think tapering is imminent."
 
"We suspect," says broker-dealer INTL FCStone in a note "that most markets have discounted the Fed's tapering to start sooner rather than later.
 
"But we still expect the gold price to be on the defensive given its poor chart picture and the lack of any support...from increased investment or physical buying."
 
Giant gold ETF trust fund SPDR Gold yesterday shed another 2 tonnes of bullion from the metal needed to back its shares, dropping to a new 5-year low beneath 817 tonnes and extending this year's decline from record-high levels to 40%.
 
"Despite the decline in ETF holdings," says ANZ Bank, "some support for gold was found from Asian buyers at the $1230 level."
 
For Western investment managers, says the Buttonwood column at The Economist, "Gold's resurgence may require a moment when central banks explicitly agree to a higher inflation target or when they declare that inflation is now subordinate to their unemployment mandate."
 
"That moment may yet come."
 
US inflation was last pegged at 1.2% on the headline CPI measure. The Fed has restated its target of 2.0% throughout 2013.

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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