Gold News

Fed Tapering "Not a One-Way Bet" Against Gold Prices But Analysts Trim 2014 Forecasts

GOLD PRICES bounced from a steady drop Monday lunchtime in London, trading back at $1234 per ounce as Asian stockmarkets ended sharply down but Europe ticked up ahead of this week's much-awaited US Federal Reserve decision on tapering its QE money printing program.
 
China premiums above international gold prices edged lower again, dropping to $6 per ounce at the close of solid trading on the Shanghai Gold Exchange.
 
Silver tracked and extended the moves in gold prices, cutting an earlier 1.2% drop in half to record a London Fix of $19.50 per ounce – exactly the level of Monday last week.
 
Looking ahead to Wednesday's Fed announcement, "A deferral of tapering and year-end squaring should be positive for gold prices," says a Japanese conglomerate's precious metals team.
 
Last week's high of $1268 per ounce reached Tuesday came as speculative traders in US gold futures and options raised their bullish bets and trimmed their bearish positions, new data from regulators showed Friday.
 
Over the week-ending Tues 10 December, the so-called speculative "net long" of bullish minus bearish bets held in US gold derivatives by non-industry traders rose by more than one-fifth to a 3-week high.
 
Equal to 184 tonnes of gold, however, the net long speculative position on rising gold prices remained near multi-year lows, down by two thirds from the start of 2013.
 
"If the Fed announces that it will be scaling back its bond purchases," says Commerzbank in Germany, "[it] could pave the way for higher prices" as it removes uncertainty.
 
"Tapering," agrees a Singapore dealing desk in a note, "does not automatically mean a one-way bet on lower gold prices."
 
But while the US Fed "will likely not do anything at its meeting," reckons INTL FCStone, a US brokerage and dealer, any "telegraphing" of its early 2014 intentions "will set up a weaker tone in gold heading into year-end, with a good chance that we could take out our 2013 lows in the process."
 
Last week J.P.Morgan analysts cut their 2014 average gold prices forecast by 10% to $1263 per ounce.
 
2014 gold prices will average $1294 per ounce says Bank of America Merrill Lynch, repeating its forecast from September according to the Dubai Chronicle.
 
"Bearish conditions persist," says Swiss investment and London bullion bank UBS.
 
"We see little to change our near-term outlook of being mildly bearish on gold prices," agrees ANZ Bank's precious metals note Monday.
 
"Gold has trended downward since late August," notes a technical analysis of gold prices from Societe Generale. 
 
"Since late October, a steeper channel has traced but [now] a sideways market is possible."
 
Whatever the Fed decides Wednesday on QE taper, unemployment above 6.5% means the US zero interest-rate policy will remain "appropriate", the central banks has repeated over the last 12 months, so long as inflation doesn't rise above 3% or 4% per year.
 
The latest US budget deal does not extend unemployment benefits launched in 2008 for the longer-term jobless.
 
That means some 1.3 million people stand to lose benefits from December 28th, potentially knocking 0.2 or even 0.5 percentage points off the official US jobless rate, according to Goldman Sachs and J.P.Morgan analysts, currently at a 5-year low of 7.0%.
 

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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