In Depth

Gold price waits for rates clues from Jackson Hole

Political turmoil in the US has the potential to 'help gold in the short and longer term'

Will gold price 'ride the suspense' to reach $1,300?

20 October

Gold looks set to buck three weeks of straight losses – and according to one analyst, it could "ride" political and economic uncertainty to a significant advance before the end of this year.

Prices hit a two-week high of $1,273 an ounce on Wednesday. Gold has since pared those gains a little, but at around $1,268 this morning, it is still heading for a weekly gain of around 1.5 per cent.

The rally petered out ahead of a European Central Bank meeting today, as investors wait for further clues as to the future direction of monetary policy.

But perhaps sentiment was most notably affected by the final US presidential election debate last night, which markets and commentators agree did little to reverse a growing sense that Donald Trump's chance of victory is ebbing away.

"A win for Democrat Hillary Clinton is now clearly predicted by polls, and is seen as easing the way for a rise in interest rates, heavily tipped by a number of Federal Reserve policymakers for December," says Reuters.

Previous Fed meeting minutes have indicated another hike will come "relatively soon". With a November rise being ruled out because of the political uncertainty, a majority of investors are betting on a move in December.

Rates increases are generally bearish for gold as they tend to boost other assets that pay an income. The already-strong dollar, against which the metal is a hedge, would also be expected to rally. 

Now everyone is convinced by this narrative, however. 

Barnabas Gan, an analyst at Singapore's OCBC bank, told Reuters nerves on the US election will continue right up until the 8 November - and that the Fed's history of vacillation still leaves doubts on a December rates rise. 

"Gold rides on suspense and uncertainty and for the very reason we expect gold to touch about $1,300 by the end of the year," he said.

Gold price: Singapore to consider bringing benchmark to Asia

13 October

Financial authorities in Singapore and London are to look into the feasibility of creating a new gold price benchmark to allow Asian consumers to help determine the cost of gold and other precious metals.

Asia's importance as a bullion consumer is "on the rise", says Reuters, with China and India the world's biggest buyers. But because prices are set in London, traders experience intra-day volatility and issues with foreign exchange rates fluctuating overnight.

Now the Singapore Bullion Market Association (SBMA), London Bullion Market Association (LBMA) and Intercontinental Exchange Benchmark Administration (IBA) are setting up a joint study on the feasibility of developing a new benchmark in Singapore.

The potential development of a "LBMA pre-AM gold price at 2pm Singapore time" benchmark was announced by Lim Hng Kiang, the city state's minister for trade and industry, at an industry conference today.

The study would be an "important first step towards establishing a US dollar price discovery mechanism for gold during Asian business hours", he said, adding: "When in place, [the benchmark] will facilitate the timely tracking of Asian demand and allow participants in Asia to settle  their trades within the same business day."

SBMA chief executive Albert Cheng said: "We hope to make a reputable gold benchmark mechanism in London available to Asian users. If there's enough interest, the IBA will consider launching it early next year."

Previous attempts to create a gold benchmark for Asia have proved unsuccessful. China launched a yuan-denominated benchmark in April this year, says Reuters, but it has "yet to gain traction".

In October 2014, Singapore launched a 55lbs (25kg) wholesale gold contract that was hoped would create a regional benchmark – but that has not caught on neither.

In London today, the gold price rose gradually as the US dollar fell back. It was up by 0.4 per cent at 2pm, at $1255 per ounce.

 

Has the gold price 'digested' another US rates rise?

13 October

As expected, minutes from the US Federal Reserve's September meeting reinforced expectations of an increase in interest rates before the end of the year.

However, this did not have the forecasted effect of dragging the gold price significantly lower.

The precious metal doesn't pay income and tends to suffer at times when interest rates are rising. Increasing borrowing costs also usually boost the dollar, against which gold is held as a hedge.

Experts had predicted the Fed minutes to send gold back to its four-month low of last Friday, when it hit around $1,241 an ounce.

Instead, the price held firm in the mid $1,250s - and rose slightly in Asian trading this morning to a high of $1,261. It was still hovering around that level in London this afternoon.

Reuters says the relative strength owed much to weak equities, which were taking a lead from weak trade data coming out of China that "stoked concerns about the health of the world's number two economy".

OCBC Bank analyst Barnabas Gan added that the fact gold held despite the rates speculation "strongly suggests that gold prices… have already digested the probability of a rates hike around this year".

In the minutes, Fed rate-setters said action to tighten policy would be justified "relatively soon", says the Wall Street Journal. Several said the September decision was a "close call".

"The minutes didn't say when the next rate increase might come, but they largely reinforced market and analyst expectations of a Fed move in December, after the US presidential election," the paper adds.

Gold price 'uptrend is over', says ABN Amro

12 October

The gold price "uptrend is over", Dutch bank ABN Amro analyst Georgette Boele has said in a note to clients, reports BullionVault.

Mounting speculation that the US Federal Reserve will increase interest rates again before the end of the year is weighing on sentiment towards the metal and Boele says a host of technical indicators suggest its 2016 rally has run out of steam.

Rising interest rates are bad news for non-yielding gold, as this boosts the attraction of alternative, income-paying assets. It also tends to help the dollar, against which gold is held as a hedge.

In particular, Boele pointed to the fact gold is currently trading below its 200-day rolling average. ABN Amro has revised down its end-year forecast to $1,200 an ounce, "with a further fall to $1,150 in 2017 now forecast for 2017".

The gold price traded slightly higher on Monday, but it is stuck in a narrow range around $1,255 that Reuters analyst Wang Tao says shows its rebound from a four-month low last week has "completed".

Tao said the market is now looking ahead to the minutes of the most recent Federal Reserve meeting this evening, with expected indications that rates will go up again before the end of the year expected to push gold below Friday's $1,241 an ounce.

"Very dull markets in precious at the moment," said David Govett, of brokers Marex Spectron. "I suspect the minutes will just reinforce the probability of a December rise [and we] may see some pressure… later".

Julius Baer analysts agreed. "The drying up of safe-haven demand, the risk of profit-taking and the outlook for a stronger US dollar suggest further pressure on prices," they said, Reuters reports.

However, they add that the US presidential election next month represents a "wild card" that could send gold higher before the end of the year.

The analysts are basing their central estimates around a Hillary Clinton victory, but said the "uncertainty that comes with a [Donald] Trump presidency" would likely be "bullish" for safe-haven assets such as gold.

Gold price endures wild swings after US jobs 'miss'

10 October

Gold prices surged more than $17 an ounce in a matter of minutes on Friday, after a keenly awaited US jobs report came in below expectations.

However, it was not able to hold those gains and finished the New York trading session down at a new four-month low, says Mining.com.

Gold's volatility has continued today, after it rose markedly overnight in Asia and pared those gains to a modest increase of around 0.5 per cent this morning.

Prices before the US jobs report were languishing at a little above $1,250 an ounce. That jumped to an intraday high of around $1,267 once traders saw the numbers, which revealed an estimated 156,000 jobs being created last week, well below the expected 175,000. 

Weaker economic data makes it less likely the US Federal Reserve will increase interest rates before the end of the year, which would be positive for non-yielding assets such as gold.

However, despite edging higher, unemployment was still around the assumed "full employment" level of five per cent. Hours worked and average wage growth also improved so there was enough to strengthen "the hawks on the Federal Reserve's decision making committee who want to raise rates sooner rather than later this year", says Mining.com.

Gold price slumped back below where it started as the figures were digested. Reuters says it touched an intraday low of $1,241 at one point before recovering.

Overall, the mixed report gives little clue on the rates trend. In focus instead this morning is the return of buyers in China after a holiday break, which has sent the gold price to $1,262 an ounce.

"Spot gold may break a resistance at $1,266 per ounce and edge up to the next resistance at $1,276 before resuming its downtrend," said Reuters technical analyst Wang Tao.

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