Gold News

Gold Jumps on Weak US, Euro Data; No US Fed Rate-Hike Expected 'Til 2011

Gold Prices jumped at the start of New York dealing on Tuesday, recovering half of last week's losses for US and Eurozone investors ahead of today's decision on Dollar interest rates from the Federal Reserve.

New data showed economic sentiment sliding in the 16-nation Eurozone, while Consumer Price Inflation came in at just 0.4% for Feb. – half the expected pace.

US import prices turned negative, down 0.3% from Jan. on average, while New Housing Construction fell 5.6%.

"I don't think you should have any expectation" of a rate increase before 2011, says former Fed governor Laurence Meyer, speaking to Bloomberg.

"A lot of people [in the gold market] are waiting for the Federal Reserve meeting later today," says refinery group MKS's senior vice-president for precious metals trading Afshin Nabavi, speaking to Platts.

"The market is confused, waiting for news. But there was no sign of large stops being hit [below $1100] like everyone was talking about."

The US Dollar fell hard vs. the Euro and British Pound as New York markets opened this morning, but Gold Prices outpaced their gains to reach €819 and £742 an ounce respectively.

Today's Federal Reserve announcement – which is certain to leave the cost of central-bank loans unchanged at 0% according to the futures market – is also expected to repeat its long-standing promise of "exceptionally low" interest rates for "an extended period".

"If either of these phrases is removed from the Fed statement, look for the metals to come under pressure," says one London gold dealer in a note. But "Gold still seems the least overextended [commodity]," counters Walter de Wet in today's Standard Bank comment.

The bullish position held by speculative traders in Comex Gold Futures remains "almost flat at 33.6% of open interest," he adds – "still well below the 42%" of all open contracts reached in September 2009.

On a gold-equivalent basis, the "net long" position of bullish minus bearish bets held by speculative players "is also largely unchanged" from early March, says de Wet, some 20% below the peak of last October.

Over on the supply side of the market, and despite the price of gold hitting a new record-high monthly average in each of Oct., Nov. and Dec. 2009, "We have not observed a shift in the attitudes of [Gold Mining] producers towards hedging," says GFMS in its latest quarterly report for Société Générale.

"These views remain ?rmly in line with the anti-hedging sentiment of prospective gold equity investors," says the London consultancy, explaining why the Shrunken Gold Hedge Book Will Stay Shrunken.

Over in the Treasury bond market, meantime, "People are heavily biased towards rising rates once the Fed ends its mortgage buying at the end of the month," says Nomura Securities head of US interest-rate strategy, George Gonclaves, to the Financial Times today.

"It's a clear case of too much cash chasing too little yield," says MF Global's senior vice president John Brady, noting that US interest-rate swaps – which are based on private inter-bank lending costs – have sunk to record lows compared to US Treasury bond yields.

UK swaps have in fact fallen below comparable gilt yields, says the Financial Times, showing "the huge amount of [new government debt] supply that must be digested by the market" according to Alex Li at Credit Suisse.

In Brussels overnight, finance ministers from the 16-nation Eurozone said they had agreed "technical modalities" for emergency loans to Greece, but gave no specifics or figures.

"Growth alone will not resolve an increasingly complicated debt equation" for Germany, France, Spain, the UK and the United States, says Pierre Cailleteau, chief analyst of a new report from the Moody's rating agency which says the "triple-A" status of their government debt may be at risk.

"We are not talking about revolution...but preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion."

Government bonds ticked higher as the US stock market began the day with a slight loss on Tuesday, nudging open-market interest rates down.

Want to Buy Gold but unsure how to do it safely at low cost? Start with a free gram of solid Gold Bullion...only at BullionVault now...

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals