Gold News

GLD Gold ETF Smallest in 4 Years as US Fed Raises 2024 Interest-Rate Forecast

The GOLD PRICE fell hard versus a surging Dollar on Thursday, dropping after gold ETFs shrank again as yesterday's 'hawkish pause' from the Federal Reserve in not raising but forecasting higher US interest rates was followed by the UK Bank of England leaving its key borrowing cost unchanged.
The UK gold price in Pounds per ounce jumped as Sterling fell on the decision – reached by Bank governor Andrew Bailey casting his vote against the rise wanted by half of his committee colleagues – and re-touching yesterday's 15-week high at £1572, some 6.2% above this time last month, before dropping £10 in London's afternoon trade.
Dollar gold meantime fell to 1-week lows of $1914 per Troy ounce – down 1.7% from Wednesday's pre-Fed 3-week high – as the US currency rose yet again on the FX market following the Fed's 'dot plot' outlook for fewer rate cuts than previously forecast next year.
Giant gold ETF the GLD shrank again Wednesday as net selling saw shareholders liquidate stock, with the quantity of bullion needed to back its shares in issue dropping to the smallest since September 2019.  
For the first time, betting on May 2024's Fed decision now sees the US central bank's effective policy rate standing higher than today's 2-decade high of 5.33% per annum, with the consensus view in CME futures for June 2024 forecasting a rate of 5.32%, up by nearly 0.3 points from this time a month ago.
Chart of gold price (inverted, right axis) vs. effective Fed Funds rate forecast by interest-rate futures for May 2024. Source: BullionVault
"Higher for longer [marks] no real change in stance," says bullion-market specialist Rhona O'Connell at brokerage StoneX, "but the bond markets have consistently underestimated the Fed's intentions."
Falling bond prices saw US Treasury yields on 1-year through 5-year debt set new post-2007 record highs at Wednesday's close, but 10-, 20- and 30-year yields edged back.
"The mood was not much better" for gold than the bearish outlook for platinum-group metals expressed at the recent Platinum Week in New York," says the latest weekly analysis from specialist consultancy Metals Focus.
Including a chart showing global gold-backed exchange-traded trust fund holdings shrinking to the smallest since early 2020 and erasing the Covid Crisis' gold ETF inflows, "There is seemingly little institutional interest in gold at present...[and] physical gold investment is also lacklustre  [as] coin/bar dealers have less reason to buy newly struck products given ample secondary market supplies" from retail customers selling back.
The Fed is "now targeting above 5% rates over 18 months," says strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp, "enough to keep the $2000 lid on gold prices" for now.
At the same time, and while "the US data is weakening but not collapsing like in other countries," says Shiels, "Q4 will likely [see that] series of domestic-data papercuts start to bite and the worsening of international conditions in China & Europe waft[ing] over to the US.
"That's the impetus for gold to break recent consolidation and this contained ~$100 range."
Like the Bank of England, the Swiss National Bank also held its key interest rate unchanged today, maintaining the cost of borrowing at 1.75%, above the August inflation reading of 1.6% but snapping an 18-month run of rises from the 2015-2022 record low of minus 0.75% and defying analysts expectations for another 0.25-point increase.
Norway's Norges Bank in contrast took the cost of borrowing Krone up to 4.25% – still lagging inflation of 4.8% on the latest data, but saying that any "additional tightening depends on economic developments" – while Turkey's CBRT today hiked cash rates 5 whole points higher to 30% per year, warning that inflation in the world's No.4 gold consumer market is likely to increase further from August's acceleration towards 60%.
Sweden also raised its key interest rate, with the Riksbank – trailblazer of negative nominal rates during the global financial crisis in 2009 – reaching 4% as consumer-price inflation slips to 7.5%.
The Lira dropped back towards last month's fresh all-time low versus the Dollar, while the Swiss Franc hit the lowest since May, the Krone fell to June levels, and the British Pound fell almost 2 cents for the day, dropping to 6-month lows beneath $1.2230 while UK Government bond prices also dropped, pushing 10-year Gilt yields up nearly 15 basis points from the 2-month low hit overnight at 4.21% per annum.
The UK government's budget deficit jumped faster than analysts expected on today's data for August. But over the fiscal-year to date, the public borrowing requirement is now 15% below forecasts made in March.
Overnight in Asia, the central banks of Indonesia, the Philippines and Taiwan all held their interest rates unchanged as data pointed to a further slowdown in economic growth.
China's benchmark gold price in Shanghai meantime edged back to ¥472 per gram – a new record high when first reached a week ago – with the premium to London quotes holding at the equivalent of $85 per ounce.
That also marked a new all-time high last week, when the incentive for new bullion imports into gold's No.1 consumer market doubled from the previous week's near-record levels on a surge in demand.
While the size of gold-backed ETF investment trust funds in Europe and North America have shrunk by 6.9% and 3.0% so far this year, Asian gold ETFs have expanded by 10.5% – albeit from a base less than 1/20th their combined size – according to data from the mining industry's World Gold Council.
Euro gold prices meantime dipped through €1800 per ounce for the 1st time since last Friday.
Silver was barely changed versus the rising Dollar at $23.20.

Adrian Ash

Adrian Ash, BullionVault Gold News

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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