Gold News

Spot Gold Falls to $1200 on Fed Taper, China Injects Banking Cash, US "Normalization" Challenged by Stock Earnings Downgrades

SPOT GOLD prices sank at the start of London trade Thursday, falling 1.9% to hit 6-month lows at $1200 per ounce after initially trading flat overnight despite the US Fed finally tapering its QE asset-purchase spending.
 
Tapering monthly QE by $10 billion from December to $75bn in January 2014, the Fed pointed to "growing underlying strength in the broader economy."
 
US stockmarket indices the S&P500 and the Dow surged to new all-time closing highs, while Treasury bonds fell and spot gold fell through this week's previous low at $1230.
 
Besides the taper, however, the Fed revised its policy on short-term interest rates, saying it will hold the federal funds rate at zero "well past the time" that the US jobless rate falls to 6.5%, its previous line in the sand.
 
Overnight in Asia, Japanese shares rose but Chinese stocks fell as the People's Bank of China broke its own rules and took to Weibo, the equivalent of Twitter, to announce a "short-term liquidity operation" after Shanghai's interbank lending rate jump above 10%.
 
The PBoC usually waits a month before reporting such moves, says the Financial Times.
 
"It's very clear they want to calm down market fears," the FT quotes ANZ analyst Zhou Hao, noting the previous spike in Chinese interest rates in June, when US Fed chairman Ben Bernanke spoke about possible QE tapering.
 
Shanghai's spot gold prices today fell 0.8% in Yuan but increased their premium over international prices from $6 to $11 per ounce.
 
Amongst Western investors, "More sensible minds realise," says a note from David Govett at brokers Marex, "that on the whole [Fed tapering] is not a good move for" spot gold or other precious metals.
 
"With further tapering probably to come over the course of next year, the outlook remains muted. However, I don't subscribe to the theory that it's all over for the bullion market [and] would be a buyer of dips if we do manage to break below $1200."
 
Bids in London's wholesale spot gold market briefly dropped below that level Thursday morning, hitting a 6-month low of $1199.75 per ounce.
 
Priced in Sterling and Euros, wholesale gold bullion fell to its lowest since spring 2010, down 29% and 31% respectively from the start of 2013.
 
Silver tracked spot gold in Dollars, briefly falling below $19.30 per ounce – a "key level" according to technical analysts at one bullion bank.
 
Fed tapering "highlights the overall positive sentiment towards the macro economy," reckons UBS analyst Joni Teves.
 
"Equities are in fierce competition with gold for investor dollars, and this year's trend of rotation away from gold into growth assets is expected to continue into 2014."
 
"This is another sign of increasing normalisation for the world economy," agrees Matthew Turner at Macquarie Bank. "Gold's insurance function is less desirable in that environment."
 
"But if the economy is accelerating as people think," counters Albert Edwards in his latest Global Strategy Weekly for clients of French investment and London bullion bank Societe Generale, "how come Thomson Reuters has just reported the fastest pace of US earnings downgrades on record?
 
"If we are set for a profits-driven economic slowdown, then the low rate of core inflation will start to become a key concern. Deflationary forces are in fact stronger than even the latest [official data] suggests."

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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