Gold News

Gold Prices Hit 2-Week High on "Dovish" Fed, But "Short Covering Leads" as GLD Shrinks to New 6-Year Low

GOLD PRICES touched their highest level in two weeks in London trade Thursday lunchtime, edging up to $1233 per ounce after jumping 2% following "dovish" minutes from the US Federal Reserve's latest policy meeting.
 
Silver followed and extended the surge in gold prices, taking its rally from Monday's new 4.5-year low to a full Dollar at $17.68 before slipping back.
 
Janet Yellen's team voted to repeat its promise of zero interest rates for a "considerable time" on concerns over the US Dollar's recent strength, plus weaker global economic growth.
 
The Euro currency and US stock markets also reached 2-week highs after the Fed minutes were released late Wednesday, but both faded as European stock markets shed earlier gains on Thursday.
 
US Treasury bond yields today extended their plunge to 2.30% on the 10-year – the lowest level since mid-June.
 
German Bund yields meantime fell to new record lows, while Brent crude oil fell yet again, after new data showed Germany's exports sinking almost 6% month-on-month in August.
 
"It is hard to make much sense of the moves in gold over the past two days," says US brokerage INTL FCStone in a note.
 
Gold prices "should have rallied much stronger on Tuesday when stocks headed south, but instead prices rose on Wednesday, dovetailing the sharp rebound in the equity markets."
 
"The [gold price] bears may have been expecting it to break key resistance $1180-85 when the Chinese were on holiday," says Alex Thorndike, senior precious metals trader in Australia for Swiss refiners MKS in Geneva.
 
"As that is now not the case, and we now have a long term triple bottom around that level, disappointed bears may get squeezed."
 
Shanghai's second day back from the Golden Week holidays saw gold trading volumes double near 1-month highs on Thursday. But the premium over London prices – a marker of local supply and demand – slipped back towards $3 per ounce.
 
In US gold futures, "We look to $1220 as an important closing level to watch," said market-maker Scotia Mocatta after Comex contracts closed Wednesday lower on the day, before the Fed's minutes were released.
 
"While gold is in the $1180 to $1230 zone," says the commodity division of South Africa's Standard Bank – now 70% owned by China's giant ICBC – "we are neutral on our short-term outlook.
 
"We would expect any break above this range to be driven mostly by short-covering; therefore, we expect such a break to fade."
 
In physically-backed trust funds, the giant SPDR Gold Trust (NYSEArca:GLD) – the world's largest ETF by value at its 2011 peak – lost another 5 tonnes to new 6-year lows of 762 tonnes on Wednesday after shareholders reduced their exposure.

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.

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