All Eyes on US Fed as Gold Price Bears Risk "Short-Covering Rally" from Lowest Weekly Close in 36
Monday, 9/15/2014 13:54
GOLD PRICES rallied $10 per ounce from a new 8-month low of $1225 hit at the start of Asian trade Monday, trading 0.5% above last week's finish in London.
European stock markets held flat ahead of this week's US Federal Reserve statement on rates and QE on Wednesday, plus the start of the Eurozone central bank's new round of long-term bank financing on Thursday.
Losing 2.7% against the Dollar, gold prices ended last week with their lowest Friday PM Gold Fix in London since 27 December 2013, down at $1231 per ounce.
Silver on Monday held steadier than gold prices, unchanged around $18.65 per ounce to trade some 1.0% above last Thursday's new 14-month low.
"With last year's double bottom of $1180 not too far off," says Jonathan Butler at Japanese conglomerate Mitsubishi, "attention will be on the Fed's comments on Wednesday."
"A hawkish stance" – such as the loss of the words "considerable time" from the Fed's forecast for its likely delay to raising interest rates from zero – "could see further strengthening of the Dollar and potentially a further gold capitulation," says Butler.
"If the market view the Fed’s comments as too dovish, gold could stage a reversal."
"We could see a short-lived technical bounce," reckons Ed Meir at US brokerage INTL FCStone, but "traders will likely use any rallies as a selling opportunity."
In US derivatives, "Some short covering and bargain hunting [was] seen down at the lows overnight," says a note from brokerage Marex Spectron's David Govett in London.
Latest data on US futures and options show speculative traders as a group grew their "short" betting against gold for the 4th week running in the week-ending last Tuesday, taking their
"net long" gold position (of bullish minus bearish bets) to its lowest level since mid-June.
Speculative betting against silver prices meantime rose for the 6th week in a row, up to a level only surpassed 3 times in the last 20 years, all in early summer 2014 when the metal began a rapid 16% rally.
"Money managers have contributed to the fall in both gold and silver prices," says the commodities team at Germany's Commerzbank.
"Given that prices have dropped further since the reporting date, net long positions have no doubt also been reduced further."
"The market remains under pressure," Reuters quotes analyst Andrey Kryuchenkov at Russian bank VTB Capital in London, "from expectations for a stronger US currency in the longer run.
"Physical buyers are still absent, unwilling to support prices on fresh lows."
With Tokyo closed for Japan's national Respect for the Aged holiday, "Liquidity was already on the thin side," says the Asian desk of Swiss refining and finance group MKS, "but once the Shanghai Gold Exchange opened up more physical interest began to trickle in - finally!"
Despite slipping from Friday's close in Yuan terms, Shanghai's main gold contract more than doubled its premium Monday to more than $5 per ounce over comparable London quotes.
With Scottish opinion polls meantime putting the "Yes" and "No" camps neck-and-neck for Thursday's independence vote, the British Pound held onto last week's bounce from new 2014 lows.
That cappped gold prices for UK investors at £760 per ounce, some 0.6% above Friday's 7-week low.
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