Gold News

Gold Prices "Rangebound 'Til Fed" But "Set to Suffer" Say Analysts, UK Unemployment Hits Rate-Rise Threshold

GOLD PRICES traded tight around $1240 per ounce Wednesday morning in London, retaining yesterday's 1.1% drop as world stock markets also held flat with commoditis.
 
Major Western-government bonds fell in price, pushing market interest rates higher.
 
"We think volatility [in gold prices] will increase markedly next week," says US brokerage INTL FCStone, "heading into the Fed policy statement" from the US central bank, widely expected to cut QE money printing by another $10 billion to $65bn for February.
 
Meantime, "The [precious metals] market is going nowhere and remains range bound," says a note from David Govett at Marex Spectron's London brokerage.
 
"There is some physical demand around which is helping support the market, but on the whole business is scarce."
 
The gold price in British Pounds today fell through £750 per ounce as Sterling broke new 12-month highs to the Euro following news of a sharp drop in the UK's unemployment rate.
 
Dropping to 7.1% on December's official data, the UK jobless rate is only just above the Bank of England's "forward guidance" target for potentially raising interest rates from their all-time historic low of 0.5%.
 
But with official CPI inflation falling to its 2.0% target for the first time in four years, policy makers at the Bank's January vote "saw no immediate need to raise Bank Rate even if the 7% unemployment threshold were to be reached in the near future," according to minutes released Wednesday morning.
 
Tuesday saw the International Monetary Fund revise its UK and global economic forecasts for 2014 sharply higher, notes Commerzbank's commodities team. So "global equity markets picked up again.
 
"Speculative financial investors [in gold] are thus likely to have taken profits," they add, noting Tuesday's outflow of 2 tonnes from exchange-traded gold funds following a run of inflows late last week.
 
Silver ETFs yesterday added some 119 tonnes, says Commerzbank, the greatest inflow since August. But "this did not help the silver price," which was still trading below $20 per ounce Wednesday lunchtime in London.
 
"Price performance [in precious metals] will continue to suffer," reckons a new report from investment bank Morgan Stanley's analysts.
 
Should "risk assets in general and US equities in particular continue to perform strongly," write  Peter Richardson and Joel Crane – cutting their 2014 target gold price by one-eighth from their previous projection to $1160 per ounce – this will work to "undermin[e] the need for portfolio managers to hold more than a modicum of safe-haven assets."
 
The average forecast for 2014's average gold price in this year's LBMA contest now sees a 14% drop to follow 2013's drop of 15%, the worst since 1982.

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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