Gold News

Gold Price Support from Chinese New Year "Set to Wane", Biggest ETF Drops 60% from Peak Value

GOLD PRICE action was dead-flat Thursday morning in London, with a brief rise to $1231 per ounce unwound as New York opened for business.
 
The world's largest consumer market for gold, China saw inflation slow to 2.5% annually in December, official statistics said Thursday.
 
Factory-gate prices slid for the 22nd month running however, the longest drop in 15 years, falling 1.3% from 12 months earlier.
 
Gold price premiums in Shanghai over international benchmarks today held at $16 per ounce, just shy of this week's earlier 6-month highs as trading volumes also held firm ahead of the Chinese New Year celebrations at end-Jan.
 
"Once this support [for the gold price] passes," reckons one New York dealing desk, "gold may be open to more downside.
 
"ETF liquidation is likely to continue while the US long-bond yield rises."
 
Ten-year US Treasury yields rose 0.14 percentage points in the first week of 2014, but held unchanged Thursday morning at 2.99% per year.
 
The giant SPDR Gold Trust (NYSE:GLD), the world's most valuable exchange-traded fund at its first peak in 2011, yesterday shed another 1.5 tonnes from the bullion needed to back its shares.
 
That took the total GLD holdings down to a 5-year low beneath 794 tonnes, worth 60% less than the record peak by value at $76.7 billion in October 2012.
 
"ETF holdings are likely to continue their downward trend while the Fed slows its asset purchases," agrees Walter de Wet at Standard Bank in London.
 
"Once current seasonal demand from Asia fades as we head into February, new longs in the futures market are likely to be liquidated [too]."
 
"The buying momentum in gold evident at the beginning [of the year] clearly seems to be fading," says one US analyst.
 
Wednesday's release of minutes from the Federal Reserve's last policy meeting were "mildly bearish [for the gold price] on the face of it," says David Govett at London brokers Marex, "but discounted by anyone who understands the way the market works."
 
"If the Fed opts for a slow, modest taper and the economy fails to rebound," says James Steel, analyst at bullion market-maker HSBC, "we would expect gold to be buoyed."
 
But with Dollar strength the most likely case from regular $10bn per month cuts to the current $75bn level, HSBC now sees the gold price averaging $1292 in 2014, before rising to average $1310 next year.
 
Swiss refining and finance group MKS sees average gold prices at $1262 this year, forecasting a rise towards $1350 mid-year "on the back of physical [Chinese] demand", but followed by weakness as talk turns to US interest-rate hikes.
 
Neither the Bank of England or European Central Bank made any change at their monetary policy votes on Thursday.

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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