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'

Gold price continues to 'seek out a bottom'

11 September

Gold recovered modestly on Thursday after hitting its lowest level for a month on renewed rate rise speculation, but analysts expect the downward trend to continue as the price "seeks out a bottom".

More immediately, Daily FX's currency strategist James Stanley says "near-term support has come in just above the $1,100 level". 

Gold had tested this threshold, which is close to multi-year lows reached in August, on Wednesday when it closed at $1,105 an ounce. Yesterday the gold price rose slightly amid wider equities falls, settling at $1,110 an ounce on the New York Comex exchange.

But analysts are not convinced that the market has reached its nadir. Even including the Thursday rise, gold prices had recorded ten falls in 13 sessions, with five consecutive days of decline leading up to the modest recovery. Chintan Karnani, chief market analyst at Insignia Consultants in New Delhi, told Marketwatch that gold is "not out of the woods yet" as the market remains fixated on the questions of when interest rates will finally rise.

BNP Paribas cut its 2015 outlook for gold by $15 to $1,145 an ounce, at the same time It also reaffirmed its view that it will "see a downturn through 2017". This follows a prediction from ABN Amro that gold could fall as low as $1,000 this year and further next.

Mark O'Byrne, executive director at GoldCore, based in Dublin, said there was current a split in sentiment between physical buyers of gold bullion and the futures market, which is used as a hedge for inflation and a proxy currency and is struggling to gain traction. Bullion buyers, however, are banking on price rises "due to a combination of geopolitical, macroeconomic and monetary risk".

Gold price slumps towards five-year lows - and stil 'expensive'

10 September

Having drifted for about a week, gold futures made a more definitive move on Wednesday – and the direction was down.

A strong US Labour Department report, which according to revealed the number of job openings in America is at a 14-year high, prompted a surge in the dollar as hitherto negative bets on whether the Federal Reserve will increase rates next week became more even. Gold moves inverse to the greenback – and with no inflation against which to hedge and at a time of weak physical demand, there is not much in the way of good news.

As a result, gold slumped to $1,105 an ounce, coming "close to crashing through the psychologically important $1,100 level" during the session. It is approaching the five-and-a-half-year low reached in August of $1,084, with a move in interest rates only likely to push it lower. Business Standard reports that expectations a rise is imminent have already dragged gold down five per cent this year, extending a long-term decline from a peak of $1,900 in 2011.

Also weakening sentiment was a report from investment bank ABN Amro, which revealed that despite its recent poor performance and multiyear nadir, gold is still expensive relative to more cyclical peer commodities such as copper, platinum and silver, suggesting it has significantly further to fall this year and next. says the bank's "house view is a gold price of $1,000 an ounce by the end of the year, weakening to $800 an ounce at the end of 2016."

Those hoping for a recovery will be looking to the ongoing concern over China to help prop up prices, after the latest data published last night pointed to weakening producer prices and the threat of deflation. If fears of slower Chinese growth prompt a devaluation of the renminbi and a 'currency war', gold may just recover some of its appeal as a safe haven.

Gold price bucks losing streak but remains in 'no man's land'

9 September

Gold bucked a five-session losing streak and settled higher at the close of trading in both London on Tuesday and overnight in Asia, but weak trading and marginal gains that failed to track the wider commodities bounce exposed its continuing weakness ahead of a decision on US interest rates.

BullionVault says that the precious metal edged slightly higher in London and even touched a three-session high during the session of $1,126 an ounce, but that it lagged a 2.5 per cent bounce in silver and even stronger 4.5 per cent surge in copper. Commodities rose on the back of a wider markets rally and news that mining giant Glencore is easing back production.

A note from the Chinese-owned ICBC Standard Bank's commodity unit said gold was currently "immune from the mini 'risk-on' bounce that has lifted most other commodities".

Overnight notes that gold eked out a further 0.1 per cent rise as Chinese authorities moved to quell investor fears over a "hard landing" for the country's economy, which boosted sentiment on commodities further.

Gold's weakness reflects the continued focus on a Federal Reserve meeting next week at which analysts believe there is a "50-50 chance" rate setters will raise the benchmark rate "for the first time since 2006". This may happen despite warnings to the contrary from most recently the World Bank. Non-yielding gold "struggles to compete with high-yield bearing assets in periods of rising rates".

"Gold is currently in no man's land," according to a note from Swiss investment and bullion bank UBS, cited by BullionVault. UBS adds "investors are understandably hesitant to put on sizeable positions ahead of the… meeting next week".

Gold price: is its long-term decline resuming?

08 September

Gold is drifting. Prices have been dropping over the past week, but the decline is gradual and trading volumes are extremely low as investors ignore wider trends and sit on the sidelines ahead of a long-awaited interest rate decision in less than two weeks' time.

With US markets on holiday, gold eased down slightly in London on Monday and in Asia overnight, settling at $1,118 an ounce. Reuters notes prices did dip to $1,116 during the European session, marking the lowest level since 19 August, but in truth settlements have been in a narrow range of around $5 for the past week.

"Gold continues to test support around $1,115-$1,117," said MKS Group trader Sam Laughlin. "Short term we see $1,115-$1,130 as the likely range."

One bullion trader in Hong Kong said there was now unlikely be "a big move" until a Federal Reserve rate setting meeting in two weeks, when the US central bank could vote to increase rates for the first time in nine years amid broadly positive signs on the jobs market. This is dominating all other trends, the trader noted, adding that gold "is not even reacting much to what we are seeing in the equities market".

Barclays said in a note quoted by The Bullion Desk that even the September decision, if it is a hold on rates as is now widely expected, would offer only "limited support" given that a slightly later rise is already "priced in" to the market. Even the most dovish analysis suggests that rates will increase either before the end of this year or very early next year, and this will hit non-yielding gold.

Currency strategist Ilya Spivak writes in Daily FX that gold could even be about to resume a "long-term down trend", as it continues to retreat from a high near $1,200. "From here, the next level of near-term support comes in at $1,108", with a settlement below this level opening the door for a test of $1,089, close to this summer's multi-year lows.

Gold price edges lower as rates rise looms large

07 September

The gold price is still rooted in a very narrow range and trading volumes are limited ahead of the Monday markets holiday in the US, but the metal is still edging lower as a looming interest rates rise comes into sharper focus.

After a "thin" trading session in Asia overnight, gold dipped as low as $1,118 an ounce, reports. It settled at $1,121, marginally lower than its close last week as it continues to retreat gradually from a high of $1,168 reached in late August.

Since then, the Daily Telegraph says, despite wild stock market gyrations, speculation of a sharp slowdown in Chinese growth and increasing concern about the global economic recovery, gold has bucked its apparent "safe haven" status and actually "slumped" 3.5 per cent.

The apparent cause is that the "US Federal Reserve is still on course to increase the key central bank borrowing rate before the end of the year", the paper says. A US jobs report on Friday showed that unemployment in the world's largest economy is at an eight-year low, adding weight to the view that rates will rise soon. This "will dull the precious metal's appeal, as it offers no interest, or income, to investors".

Earlier last week "the European Central Bank lowered its expectations for inflation and growth during the next three years", further hitting a metal that is also seen as a "store of value which protects against the ravages of high inflation".

All of which suggests gold may yet fall further. This view is supported by weak recent demand for the metal, especially in China, the second largest market for gold in the world. The Financial Times says demand from the world's second largest economy may yet fall further, pointing to "a sense of panic among retail investors" that "does not bode well".


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