Gold News

Gold & Silver Fall as Fed Tapering Replaces Syria as Traders' Focus

GOLD and SILVER prices bounced on Wednesday from new 3-week lows as the US cancelled a Congressional vote on Syria, and traders pointed to next week's expected "tapering" of quantitative easing by the Federal Reserve.
 
Oil prices and other commodities also stemmed this week's drop. World stock markets rose sharply.
 
Gold and silver trading volumes were "thin", dealers said, with one calling the markets "very quiet" but other reporting "some light physical interest" from Asian stockists as prices fell.
 
"Syria for now remains a lingering underlying bullish factor" for gold and silver," says a note from Swiss refining and finance group MKS.
 
"But with each passing day that will play a smaller component in propping the market up."
 
"For the time being at least," agrees David Govett at brokers Marex, "the Syrian crisis is averted, [so] the 'war premium' has gone" from gold and silver prices.
 
"Now...most people are looking for some sort of quantitative-easing tapering" at next week's US Fed meeting.
 
Noting that gold and silver "started to decline with the declining probability of a military intervention" in Syria, analysts at investment bank Goldman Sachs now say "The September FOMC meeting, where our economists expect a tapering of QE3, could prove the catalyst to push gold prices lower."
 
Over the next 12 months, precious metals including gold and silver could drop a further 15%, Goldman Sachs says, advising its clients to go "underweight" the entire commodities complex.
 
Fellow investment bank J.P.Morgan in contrast recommended going "overweight on commodities" last week, BusinessWeek notes, thanks to rising demand from China, plus better manufacturing data worldwide.
 
"There's ample room for fresh selling [of gold and silver] should Fed tapering of QE be confirmed," said Swiss investment bank UBS analyst Joni Teves earlier this week.
 
"Gold prices would probably fall to $1250 an ounce in the first move," Teves told CNBC Tuesday. "But I certainly wouldn't rule out another attempt below $1200 if...the Fed is more aggressive than the market is currently expecting."
 
Major government bonds bounced in price Wednesday morning, edging yields lower from recent multi-month highs.
 
Ten-year UK gilt yields held above 3.0% however, and Sterling briefly spiked to $1.58 – its highest level since February – after new data showed a surprise fall in the UK jobless rate to 7.7%.
 
The gold price in British Pounds touched a 4-week low of £860 per ounce, reversing almost half of gold's July-August rally.
 
Before raising UK interest rates from their all-time low of 0.5%, Bank of England governor Mark Carney has set "forward guidance" that unemployment must first fall to 7.0%.
 
Average UK wages last month rose 1.0% from a year earlier, data showed today. Consumer price inflation was last pegged at 2.8% per year.
 
Silver prices for UK investors today bounced from £14.49 per ounce, the lowest level in 3 weeks and more than 10% beneath end-August's peak.

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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