London Gold Market Report
From Adrian Ash
The PRICE of GOLD slipped 1.1% from yesterday's sudden 3-week high in London on Wednesday, holding above $1330 per ounce as the US Dollar rallied from new two-year lows on the currency market.
Falling to $1.3790 per Euro, the Dollar had dropped almost 1% after September's US jobs data showed much weaker hiring than analysts forecast.
"Although December remains a possibility" for the US Federal Reserve to start 'tapering' its $85 billion per month quantitative easing, "this report makes it more likely that the Fed pushes the first reduction in the pace of its asset purchases into 2014," say economists at Goldman Sachs.
Tapering is now most likely to begin in March, they add, when current chairman Ben Bernanke is due to be replaced by Janet Yellen.
"We are technically clearly at a key juncture for the development of the next medium-term trend," says chart analysis from Commerzbank in Germany, adding that its technical analysts are now "neutral" on gold's direction short-term.
"I still believe the upside is limited," says David Govett at brokers Marex, pointing to "the absence of any other positive factors" beyond the declining US Dollar.
"We suspect that gold should continue to push higher," says a note from INTL FCStone, also pointing to the weakening US currency.
But for the new trend to continue, gold investment and jewelry demand "do need to pick up."
Gold exposure through the giant SPDR Gold Trust, the world's largest exchange-traded gold fund, rose Tuesday for the first time in a month, and by the largest volume in 8 weeks.
Adding 6.7 tonnes to the gold needed to back the SPDR's shares, however, the trust's assets remained near 56-months lows at 878 tonnes.
"We favour selling this rally in gold," says Australia's ANZ Bank, "as the fundamental demand from China seems to be wavering."
Hitting $25 per ounce last week, Shanghai premiums for physical gold over and above London benchmarks slipped today to $7 from $8 on Tuesday.
New data meantime showed China's biggest banks tripling the amount of bad loans they wrote off in the first half of this year.
Forecasting a contraction in China's manufacturing activity for September – due for data release tonight in HSBC's monthly PMI index – "The slowdown is due to weak demand and rising interest rates," reckons chief China economist Zhiwei Zhang at brokerage Nomura, speaking to CNBC.
Meantime today in India – where finance minister P.Chidambaram repeated the ban on gold coin imports Tuesday – a major bullion-backed mutual fund was reopened to new business after a 3-month suspension, made as the government called for banks to cease promoting gold.
The $300 million Reliance Gold Savings Trust likely waited for the summer's sharp drop in gold imports reported earlier this month before reopening, Reuters quotes Commtrendz Research director Gnanasekar Thiagarajan.
"However, the biggest challenge will be to find gold supplies as it is not available in the market."
Premiums on gold in India today held at record levels of up to $125 per ounce above London benchmarks, dealers said, as growing festival demand continued to meet a "drought" of supply amid the ongoing import restrictions.
"A large part of jewelers and goldsmiths are on the verge of a closure due to non-availability of gold," says M.C.Jain, president of the All India Bullion & Jewellers Association, which met recently with government officials to discuss easing the gold import rules.
Adrian Ash
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.
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