Gold News

Gold Prices End October Flat, Erase 2.5% Gain as Fed Fails to Surprise, Silver Falls Thru $22

GOLD PRICES fell  further in London trade Thursday, recording the lowest PM Gold Fix in 10 days and turning what had been a 2.6% gain for October into a slight loss at $1325 per ounce.
 
Dropping overnight, the gold price had already hit 1-week lows as world stockmarkets also fell following the US Federal Reserve's latest policy statement.
 
Changing neither the US Dollar's zero interest rate or $85 billion of monthly quantitative easing, "Fiscal policy is restraining economic growth...Inflation has been running below the Committee's longer-run objective," the central bank said Wednesday.
 
Deciding "to await more evidence that progress will be sustained before adjusting the pace of [quantitative easing] purchases," the US central bank – which had flagged September as the likely start of ' QE tapering' in June – said again that " a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens." 
 
By the end London's October trade Thursday, gold prices stood almost 3% below Monday's 5-week highs.
 
Silver bullion matched and extended that fall, falling below $22 per ounce after breaking above $23 on Wednesday for the first time in 6 weeks. 
 
Please Note: There will be no London Gold Market Report this Friday, 1 November.
 
The rising Dollar knocked the Euro currency on Thursday back to its lowest level in 2 weeks beneath $1.3600.
 
Crude oil led commodities lower with a 0.5% drop. US government bonds rose in price, nudging the 10-year yield back down to 2.50%.
 
"Clearly," said Thursday's precious metals comment from German bank Commerzbank, looking at the gold price drop, "some market players expect the Federal Reserve to scale back its bond purchases in the near future.
 
"[But] the Fed made virtually no changes to its statement that would justify this expectation."
 
Looking ahead, "The Fed will likely not do anything at its year-end meeting given that there are key budget and debt ceiling dates just a few weeks after that," says Edward Meir at brokers INTL FCStone.
 
"We think gold prices may be under pressure for the balance of the week, but the [precious metals] complex should regroup and push higher going into year-end."
 
Meantime, says ANZ Bank's daily note, "Gold along with other markets, was positioned for a dovish Fed. With this event risk now behind us, the market will go back into data-watch mode."
 
Looking at gold market dynamics, "The slowing of physical demand and decline in Shanghai premiums will mean gold prices have to fall further," says ANZ, "before sparking any strong end-user demand."
 
Shanghai gold ended Thursday equal to $1337.29 – some $1.50 above London spot gold per ounce – after dropping Tuesday to a discount to the world's gold price benchmark for the first time in 2013.
 
Declining trade volumes on the Tokyo gold futures exchange saw foreign traders account for a record-large 42% of the market in September, the Tocom said last week.
 
Today the Bank of Japan stuck with its 0.1% interest rate and $700 billion per year of quantitative easing.
 
"The recovery and the economy are distorted [by QE]," said a letter to clients this week from the $23 billion hedge fund Elliott Management.
 
That makes the situation " uniquely positive for gold," says the fund, run by prominent Republican backer Paul Singer, also saying Eurozone politicians have done nothing to fix the currency union's "unsustainable structure".
 
Studying charts of the gold price, "If a picture can tell a thousand words, this does it quite succinctly," says MacNeil Curry, head of global technical strategy at Bank of America Merrill Lynch, pointing to a monthly log chart of Dollar gold since 1980.
 
Curry's uptrend – which joins the rising gold price's lows of the early 2000s – is extended to 2013, but comes beneath and does not touch the market price since 2005.
 
"There has been no damage to [gold's] long-term uptrend which began back at the turn of the century," says the BAML technician.
 
Shorter-term, "I would certainly look for a move upwards of at least $100 from current levels."
 
Latest data from US regulator the CFTC – now 2 weeks behind with its Commitment of Traders report after the US government shutdown ended – meantime show speculators in New York gold futures cutting their net betting on higher prices by 25% in the week-ending Tues 15 Oct.
 
The gold price fell over 5% that week to hit a 3-month low of $1252 per ounce.

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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