Gold News

Gold Prices Lose 'Overdue Bounce' vs 'Strong Dollar' But Hit 1-Month High vs Euro as ECB's 'Brave' QE Plan Risks Being 'Too Successful'

GOLD PRICES gave back an overnight rally to $1166 per ounce in London on Thursday, again nearing last November's 5-year Dollar lows as a rally in the Euro currency faded and US bond yields ticked higher from 2-week lows.
 
Gold priced in the Euro briefly traded above €1100 per ounce – a 20-month high when reached in January – for the first time in 5 weeks.
 
Eurozone stock markets reversed earlier losses as the single currency fell back but held above yesterday's new 12-year low at $1.05 on the FX market.
 
Silver retreated with gold prices, and industrial commodities also edged back.
 
"Basically," CNBC quotes bullion-bank HSBC's analyst James Steel, " deflationary impulses, a strong Dollar, relative strength in paper assets and the Fed shift are the major headwinds preventing any kind of functioning gold rally."
 
Referencing US gold futures, not physical quotes, both Bloomberg and Reuters today note that gold prices had fallen for 8 days straight – the longest stretch since 1998 or perhaps 1973 on their respective records.
 
London's PM Gold Fix – the single price clearing the most physical business worldwide each day – fell 4 days running to Wednesday, the longest stretch since early February.
 
"I don't believe this is the beginning of a major turnaround," said David Govett in London for brokers Marex Spectron of the earlier bounce in gold prices.
 
"But there has to come a point when a market going steadily in one direction is due a correction of some sort."
 
"Physical demand has picked up a little," says an Asian trading desk, "and that is expected to continue."
 
"But the physical demand seen from the South East and China is drying up," counters another Asian dealer's note.
 
On the monetary policy front Thursday, the Bank of Korea cut its base rate to a new all-time low of 1.75%.
 
New Zealand's central bank kept its key rate unchanged at 3.5%.
 
"The European Central Bnk has taken bold, brave, responsible decisions," said French president Francois Hollande, adding that – with the Euro down 12% so far in 2015 as the ECB begins QE bond buying and sub-zero rates – it would " make things nice and clear [if] one Euro equals a Dollar."
 
But 'good' Euro weakness "could quickly morph into 'bad' weakness," says Standard  Bank FX strategist Steven Barrow, noting Austrian central bank governor Nowotny's comments Wednesday that "QE might be too successful," driving bond yields too deeply negative for the ECB to buy any more under the terms of its asset-purchase rules.
 
German Bund yields are now sub-zero out to 7 years' maturity. Having set a floor for permissible bonds at minus 0.2% – its deposit interest rate – the ECB could be "forced to cut the program short or lower the deposit rate significantly," says Barrow, "to widen the universe of bonds that are available to buy."

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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