Gold News

Gold Investors Driven by "Rivers of Money" and "Lack of Alernatives" Ahead of US Fed Decision

The price of Gold slipped back from yesterday's new record high of $1284.50 per ounce in London on Tuesday, unwinding Monday's 0.7% gain as world stock markets crept higher ahead of today's US Federal Reserve policy decision.

Major-economy government bonds rose, and crude oil fell.

Silver Prices dropped to 3-session lows beneath last week's close of $20.75 per ounce.

"At these rarefied levels, investors continue to be wary," says a note from Swiss refinery group MKS's Finance division.

"While the yellow metal ought to continue to rise, it will be a volatile trip."

Volatility has been absent, however, from the last 7 week's 10% rise in Gold Prices, with the Chicago Board of Exchange's new CBOE/Comex Gold Volatility Index (ticker: GVZ) closing Monday at just 19.

The CBOE's new oil volatility index ended last night above 32. The VIX index of volatility in S&P500 stock options stood at 21.5.

"This gold rally has been as orderly as the March of the Penguins," says CNBC senior editor Lori Spechler – "straight line, all participants headed north."

"It seems like Gold is being driven more by investors just deciding there aren't any compelling alternatives," says Douglas Porter, deputy-chief economist at BMO Capital Markets in Canada.

"One of the things that has bothered people is the possibility of further quantitative easing by the Federal Reserve Board, which essentially means injecting further liquidity into the market," says Bank of Nova Scotia's Patricia Mohr, also speaking to the Toronto Star.

"Some gold investors expect to see new rivers of currency offered" by today's US Federal Reserve decision on monetary policy, notes Angela Prunecchi on the trading desk of Italpreziosi in Arezzo, Italy.

But while 54 out of 63 economists surveyed by Bloomberg expect the Fed to retain its promise of "exceptionally low rates for an extended period", sixty of those experts don't expect any new Quantitative Easing today.

"We can probably expect that they won't come out with additional measures," agrees commodity trading chief Darren Heathcote at Investec in Sydney, speaking to Reuters.

"In that case, you might see the Gold Price retrace some of its recent gains."

US Treasury bond prices rose meantime Tuesday – and so yields fell – ahead of the Fed announcement.   

European government debt also rose after new bond auctions by Ireland, Spain and Greece attracted strong investor demand, but only at higher yields than last time they went to market.

Gold priced in Sterling hit new 14-week highs above £826 per ounce after the government reported an August record for its budget deficit.

The Euro Gold Price fell, however, as the single currency rose sharply on the forex market, breaking back above $1.31 to the Dollar and capping gold at €31,300 per kilo.

"I don't think [gold's] going to stop," said Harmony Gold's CEO Graham Briggs to reporters at this week's Denver Gold Forum today.

"I think gold financial issues in the world demonstrate the basic principle of gold – that it's basically a good investment."

Taking part in the Forum's opening debate last night, Paul Walker of the GFMS consultancy said a short-term "collapse" in the Gold Price would require higher interest rates from the world's major central banks – an event due "some time within the next five years," according to Lawrence Williams' report for MineWeb.

Buying gold today? Make it simple, secure and cost-effective by using the award-winning world No.1, Bullion Vault...

Adrian Ash

Adrian Ash, BullionVault Gold News

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.

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