Gold News

Gold Trading 'Lacks China & India Support' as Strong US Job Openings Hit Bonds, Fed 'Will Unwind QE'

GOLD TRADING in London saw the metal cut into an earlier rally late Tuesday, edging back $7 per ounce to $1177 after new US jobs data saw Treasury bond prices hit their lowest level in 7 months.
 
US stock markets also traded lower with European shares as the number of job vacancies in the US was reported at a series record for the end of April, with 5.4 million openings – the highest number since the data began in December 2000.
 
The number of job-seekers per job opening fell to 1.6 on the Bureau of Labor Statistics figures, the lowest level since before the financial crisis broke in summer 2007.
 
"US to unwind QE," says a new multi-asset research report from French investment and bullion bank Societe Generale, forecasting that the Federal Reserve will sell some of the Treasury bonds it has bought through quantitative easing as it tightens policy "via a mix of rate hikes and balance sheet reduction.
 
"Forget deflation, inflation fears are warming up," it goes on, recommending that clients "increase cash" in case of bond and equity markets taking fright at the Fed's first rate hike.
 
For emerging markets and commodities, "End of underperformance in sight," SocGen adds, but its analysts "prefer base metals to gold" and recommend "portfolio diversification through Chinese assets."
 
With mainland Chinese shares today being considered for inclusion in global indexer MSCI's emerging-market benchmark, Shanghai equities eased back Tuesday from their recent surge – a jump compounded, says IG analyst Bernard Aw in Singapore, "by expectations that banking stocks will be one of the main beneficiaries of such an inclusion" because global fund managers will need to buy those shares.
 
China brokerages have meantime slashed the level of bearish shorting by clients, as well as the amount of money clients can borrow to buy more shares, reports Caixin Online.
 
One executive from a securities firm says they are "approaching the regulatory limit that caps lending at four times a firm's net assets."
 
Consumer-price inflation in China slowed to 1.2% per year in May, new data showed Tuesday – missing analyst forecasts – while factory-gate prices continued to deflate at a 4.6% annual pace.
 
Gold trading in Shanghai was muted Tuesday, with premiums for the city's main domestic contract over and above London prices capped at just $1.30 per ounce by the close.
 
That "indicat[es] lackluster physical demand," says a weekly precious metals note from Japanese conglomerate Mitsubishi, with premiums over London prices also flat to negative in India.
 
"Gold may therefore be lacking a cushion of support from those two markets."
 
New data Tuesday meantime showed Greece's economy shrinking 0.2% in the first quarter of 2015, while the broader Eurozone grew 0.4% according to Eurostat.
 
With Athens' bail-out program since 2010 set to expire on June 30th, "The Greek government wants this to be the final negotiation," said finance minister Yanis Varoufakis in an interview.
 
"My Greek counterpart is hard work," his opposite number in Berlin, Wolfgang Schäuble told a conference in Berlin. "The ball is in Greece's court."
 
Investors trading gold in Euros saw the metal touch a 5-month low at €1047 per ounce overnight before the single currency retreated on the FX markets.
 
Silver briefly slipped below $16.00 per ounce for the third time in 3 sessions, edging near 5-week Dollar lows.
 
Silver "is lacking interest at current levels," says one refiner's trading note, "which doesn't bode well for the metal considering it is trading [near] multi-year lows."

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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