Gold News

Gold Price Retreats from 3-Month High vs. Surging Dollar, US Options Bullish But Physical Demand Belies 'Safe Haven' Claims

GOLD PRICES retreated from 12-week highs at $1244 per ounce in London trade Tuesday, dropping $10 as the Dollar re-touched last week's 9-year highs against the Euro on the FX market.
 
Euro gold prices held just shy of the morning's peak at €1054, the highest level since start-September 2013.
 
Gold priced in British Pounds also eased back after hitting new 10-month highs at £820 per ounce – some 7.8% higher for 2015 so far – following new data showing UK inflation slowing to its lowest pace in 15 years in December.
 
"Gold at three-month peak on haven buying," says a headline at the Financial Times.
 
"People traditionally think of gold as being an inflationary hedge," the FT quotes former Barclays product manager and now director of the G-Cubed Metals consultancy Jonathan Spall.
 
"But it's also a financial uncertainty hedge."
 
Eurozone stock markets rose 1.5% however on Tuesday, taking Germany's Dax index to new record highs.
 
The S&P500 in New York opened 1.3% higher from Monday's finish.
 
In the 5 most popular Comex gold options, according to Reuters data, bullish "call" contracts ended Monday outnumbering bearish "puts" by 4-to-1 for March and 9-to-1 for February.
 
Cash-price exposure to physical gold in contrast rose only 0.7% as measured by the SPDR Gold Trust (NYSEArca:GLD), taking the value of the world's largest gold ETF to $27.9 billion.
 
Some 4.4% above start-January's new 6-year low, the value of the gold needed to back GLD shares has shrunk by two-thirds since August 2011, when it overtook the S&P500 ETF Trust (NYSEArca:SPY) as the world's biggest exchange-traded fund.
 
Chinese gold prices meantime ended Tuesday 0.6% higher against the Yuan, but Shanghai premiums over and above London quotes fell to 3-week lows at $2.60 per ounce, suggesting weaker wholesale demand for physical metal in the heaviest consumer nation after India. 
 
The Shanghai Gold Exchange's main "international" contract ended the day at a discount to London of 60 cents per ounce on its strongest volume in a week.
 
"There are expectations that demand from China will be strong ahead of Chinese New Year," says a new gold price forecast from Dutch bank ABN Amro. But together with " deteriorated investor sentiment" in stockmarkets, plus "doubts the [US] Fed will start hiking interest rates this year...[such] developments are only temporary in our view.
 
"Once Chinese New Year is behind us, sentiment improves and the financial markets start to embrace for higher US interest rates, the US Dollar should move higher and precious metals lower."
 
"Gold," agrees Germany's Deutsche Bank – also, like ABN Amro, now exiting physical bullion trading – "may have benefited from safe haven flows and proved resilient to US Dollar strength. [But] we doubt this can persist for long.
 
"Gold is vulnerable to positive US growth shocks."
 
"Further US Dollar strength," says a separate report from Japanese trading house Mitsui, "might have been expected to send the gold price lower in early 2015."
 
While there is "no clear set of reasons for this price strength," its note goes on, "concerns over a possible exit from the Euro by Greece may have provided support."

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

 

 

scri

Market Fundamentals