Gold News

Gold Prices "Trapped in Downtrend" Say Analysts as Debt-Ceiling Finds Short-Term Fix in Washington

GOLD PRICES bounced hard from new 3-month lows hit mid-morning in London on Tuesday, recovering $10 per ounce from $1255 as European shares rose but US stock futures pointed lower.
 
The Dollar rose, knocking almost 1 cent off the Euro, as word spread of an apparent US political deal to avert technical default at the debt ceiling's deadline on Thursday.
 
The proposal would extend government funding to January, with an interim hike in the $16.7 trillion debt ceiling, according to reports.
 
US bond prices edged lower, however, nudging interest rates up.
 
Silver mapped and extended the action in gold prices, dropping almost 3% before climbing back to $21.01 per ounce.
 
"Most disappointing" about gold prices, says a note from brokers INTL FCStone, "is the fact that the precious metal has hardly managed to stage any kind of rally, even when the outlook for the US budget and debt ceiling negotiations was at its bleakest.
 
"Now that an imminent resolution seems to be in the offing...the prospects for a further advance look all the more questionable."
 
Looking at trading action in gold prices, "What is evident," says one Singapore dealing desk in a note, "is that gold remains trapped in a bearish trend."
 
"Gold market bears have the technical advantage," agrees Indian dealer and jewelry chain Riddisiddhi Bullions. "A seven-week-old downtrend is in place" in the price.
 
Indian gold prices also slipped Tuesday to new 3-month lows as the Rupee recovered further from September's all-time record lows on the currency market.
 
Legal exports of gold bullion to India from Dubai fell nearly one-fifth by value over the first 8 months of the year, new data from the Arab emirate's Chamber of Commerce said at the weekend, dropping to the equivalent of $815 million.
 
Following rumors of Indian gold deposit banking products, aimed at "mobilizing" existing Indian gold holdings to meet new consumer demand, Reuters today said the central bank is about to launch savings certificates linked to changes in India's inflation rate.
 
This retail investing offer is part of a move announced in May to raise $2.4 billion using inflation-linked bonds. It's also part of the Indian government's "continued bid to encourage households to diversify away from gold," Reuters says, citing official sources.
 
Consumer price inflation in India rose in September to a 7-month of 9.8% per year. The best bank interest rate currently offered is 10.1% for 16-month deposits, according to MoneyControl data.
 
Speaking in Washington yesterday, "[India] can pay three-fourths of its debt from its forex reserves," said Raghuram Rajan, governor of the Reserve Bank of India.
 
Stressing that India has no need of IMF support to strengthen its reserves or boost the Rupee, and referring to private gold consumption, "We [as a nation] bought over $60 billion gold last year," said Rajan.
 
"$60 billion accounts for three-fourth of our current account deficit. If the push comes to shove, we can pay the world in gold."
 
Gold dealers in China have meantime "been a reasonable buyer of late," says a note from MKS Capital, a division of the Swiss-based refining and finance group, pointing to a rise in Shanghai Gold Exchange's gold prices to $19 above London's benchmark.
 
"But the more progress made [in US debt ceiling talks], the more pressure is applied to gold. Investors are becoming increasingly worried about gold's long term stance as an investment product."
 
Talking about gold prices on Monday with Bloomberg, "I think between $1200 and $1250 it's getting into a buying range," said Swiss money manager and now Asia-based author Marc Faber of the Gloom, Boom & Doom Report.
 
"The sentiment about gold is very negative. But if you look at everything considered, [there is] monetization of the US debt, and the debt ceiling sooner or later will be increased.
 
"Because both Democrats and Republicans are big, big spenders."

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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