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Gold Prices Bounces Off "Key Bullish Level" as US Inflation Slows, Dollar Gains, China Eyes Miner Hedging

GOLD PRICES bounced Wednesday in London off $1242 per ounce – a "key" technical level according to several chart analysts – as new US inflation data showed the Consumer Price Index falling last month from August.   Seasonally adjusted, and excluding fuel and food costs, so-called "core inflation" rose from 0% annually to only 0.1%, missing Wall Street forecasts.   The Dollar rose after the news to 1-week highs against the Euro, while European stock markets reversed earlier losses and US equity futures pointed modestly higher.   Commodities extended their bounce, and major-government bond prices also rose.   Tuesday's close above "critical resistance" at $1242 had confirmed a "bullish event", technical analysts at Swiss bank UBS said earlier – pointing to that level as the 38.2% retracement of gold's July to October drop.   Gold, agrees UBS's fellow market maker Scotia Mocatta, rose yesterday above both that Fibonacci level as well as the 50-day moving average of prices at $1248.35.   "Momentum indicators are biased to further upside," Scotia said overnight, also pointing like to UBS to $1264 and then $1283 as gold's next likely resistance levels.   Falling to $1242 after today's US consumer price news, gold prices then held $10 below Tuesday's new 6-week high of $1255, defying German bank Commerzbank's comment that if inflation slowed, "gold could receive an additional boost, as the Fed might raise interest rates later than previously expected."   In today's action "The Chinese were sellers," says one Asian dealing desk, "which was of no real surprise" with prices hitting 6-week highs.   "Offers on the [Shanghai Gold Exchange] were layered up preventing any move higher," says Swiss refining and finance group MKS.   Solid volumes today saw Shanghai's premium above London gold prices tick higher from Tuesday's 1-month low at 15 cents per ounce.   Besides its existing gold contracts, the SGE is planning to add forwards and options – a crucial offering for "bullion bank" mining finance – sometime soon, Reuters quotes unnamed sources.   The world's No.1 gold mining producer since 2007, China will see output growth slow from 5% this year to below 1% in 2018, according to analyst Xinying Chia at Business Monitor International (BMI), with its current beloow-ground reserves depleted around 2020.   Gold miners worldwide, says new analysis from market consultancy Thomson Reuters GFMS, will this year "hedge" some 40 tonnes of production net, selling forward the greatest volume to lock in prices since the market bottomed – and miner hedging neared its peak – in 1999.   The global hedgebook peaked above 3,100 tonnes of gold in total, more than a current year's worth of world mine output, in 2001.

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Gold Bullion Flows to Asian Jump But No.1 ETF Sheds Metal as China Growth Hits 5-Year Low, S&P Extends Rally

GOLD BULLION rose to 6-week highs above $1250 per ounce in London's wholesale market Tuesday as European equities shrugged off poor data from China and S&P futures pointed higher on Wall Street.   Gaining 5.8% from this month's new 2014 lows, the price of gold bullion contrasts with the 4.5% drop in global stock markets on the MSCI World Index.   But gold bullion holdings to back the giant SPDR Gold Trust however fell Monday at the fastest pace so far in 2014, losing 10 tonnes to a new 6-year low of 752 tonnes.   Such changes in the SPDR Gold Trust (NYSEArca:GLD) are reported to show a 2-day lag – the standard settlement terms for wholesale gold bullion in London, where the GLD vaults with commercial bank and market-maker HSBC.   "Gold's performance overnight was all the more encouraging," says Swiss refining and finance group MKS, "as the S&P [index of US stocks] closed back above 1900 and market jitters seems to have calmed for the time being."   New GDP data from China – the world's No.1 gold miner, importer and consumer nation – today beat analyst forecasts but showed a slowdown in economic growth to 7.2% per year in the third quarter.   The slowest pace since the Western world's financial crisis of early 2009, that pace is also below Beijing's long-standing 7.5% target.   Separate data today showed growth in China's retail sales, as well as new urban investment, easing in September to the slowest pace in 5 years.   Japan's shares fell 2% by the close, but European equities extended their rally from this month's near-10% drop.   Crude oil extended its bounce and US bond yields ticked higher while silver rose sharply.   Adding 1.5% to hit near-1 week highs at $17.66 per ounce, silver had earlier lagged gold once again, taking the Gold/Silver Ratio to a new 5-year high above 71.4 ounces of silver per 1 ounce of gold.   Trading volume in the Shanghai Gold Exchange's main contract rose towards the last one month's average. But Chinese Yuan prices failed to rise as quickly as world prices in London, cutting the Shanghai premium almost to zero from the 1-month average above $3 per ounce.   Swiss gold exports to China and Hong Kong were 36 tonnes last month, new trade data from the world's No.1 refining nation showed Tuesday, while India imported 58 tonnes of September's 173-tonne total – the largest flow in 7 months.   "This ties in well," says a note from Swiss bank and London market-maker UBS, "with the pick-up in physical demand across the key [Asian demand] centres."   "There is an improvement in gold demand on Dhanteras," The Times of India quotes one Delhi jeweler, "as gold is quoted at a lower level compared to last year."

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Swiss Gold Vote: Should You Be Worried?

Switzerland's gold referendum will force the SNB central bank to buy more than it sold in 2000-2008...   The SWISS GOLD VOTE in November – "Should I be worried?" asks a BullionVault user owning metal in Zurich, writes Adrian Ash at the world-leading physical gold and silver exchange online.   It's no idle question. Governments do nasty things when they need to buy or keep hold of an asset.   Witness the United States' compulsory gold purchase of April 1933 for instance...and its ban on hoarding, exporting or trading gold.    Big difference here is that the Swiss public gets to vote on what drives such measures. Thanks to their petition system, the country's junkies get junk on prescription...while minarets are banned. The changes proposed for 30 November would compel the Swiss National Bank to: hold all its gold reserves in Switzerland;  raise gold holdings to 20% of the SNB's total assets;  never sell gold ever again.  This is a Swiss decision, and with the Franc effectively "backed" by gold again if this passes, it's really not for us British turkeys...earning and holding British Pounds Sterling...to say whether or not a foreign nation should vote for Christmas.   But personally speaking, I'm no fan of central-bank gold hoarding. It tends to mark dark times, and still darker plans on the part of government.   The Swiss government is in fact pitted against this new gold plan. But still, it's better by far to let gold circulate freely, I believe...outside state vaults and in private hands...just like the truly classical Gold Standard worked.   But let's put my hopeless idealism, and the economic wisdom (or otherwise) of this 1930s-style Gold Standard proposal aside (for that is what it is). Just how desperate might the Swiss authorities become if the vote passes? Put another way, what impact might it have on the supply/demand balance worldwide, and hence prices?   First, the security of gold property held in Zurich or Bern, under the tarmac at Kloten or beneath the Gotthard mountains. Switzerland is a highly open economy, with financial services earning a huge portion of its tax revenues and employing nearly 6% of the working age population. Its banking reputation may have been dented in recent years (and its hard-won bank secrecy laws look set to be crushed by the European Union kowtowing to the US juggernaut). But physical gold storage, alongside refining imported gold bullion for export, continues to be a crucial industry.   By our reckoning, the world's investors added 1,400 tonnes of gold to private and bank vaults in Switzerland between 2009 and 2013. For non-bank storage of physical property, it remains by far the most popular choice amongst BullionVault users, holding nearly 75% of the current record-high levels of client gold. To the best of our knowledge, no country enjoying such revenue – nor any state enjoying such confidence from foreign wealth – has ever turned it away.    Even during the UK's balance of payments' crisis of the 1970s, foreign-owned bullion was allowed to enter and leave freely, sidestepping both VAT sales tax and the exchange controls blocking private British ownership of gold. London of course remains the centre of bullion dealing worldwide, just as Switzerland remains the No.1 choice for investment storage. It's very hard indeed to see Switzerland attempting any kind of expropriation, compulsory purchase, exchange controls or punitive taxation – most especially of foreign-owned gold.    So, with theft highly unlikely (especially against the popular pro-gold backdrop of a successful referendum), might the SNB rush to buy gold in December after the 30th November vote? Complicating factors start with the referendum process itself. Next month's question gives no time limit for completing the extra gold buying, nor for repatriation of existing stock from foreign central-bank care. But if voters look harder (and they'll be urged to think hard by the pro-gold billboard campaign set to start mid-November), then supporting documents set a deadline of 2 years for bringing the current gold home, and 5 years for reaching that 20% target. However, the clock will start running from the date of "acceptance". But is that acceptance by voters (ie, November 30th) or by parliament and thus the regional cantons (ie, into Swiss law)?   This matters, because Swiss referenda, when approved by the public, can take up to 3 years to become law. So the whole process...if the SNB accepts its fate and doesn't work with the government to refuse, reject or somehow revoke the Swiss public's decision...could last up to 8 years.   Expect delays. SNB president Jordan has long spoken against the vote, and vice-chair Danthine did so this month (invoking the threat of deflation and Euro-led recession). Those policymakers are unelected, so Switzerland's referendum pits popular, if not populist will against the technocrats. But elected politicians also oppose the move (and by a wide margin). Even if passed, in short, the spirit of the new rules will likely be hampered by those people charged with enshrining and then enacting them.    The SNB is also a signatory to the fourth Central Bank Gold Agreement. Running for 5 years from 27 Sept. this year, it obliges the 22 central banks involved to "continue to coordinate their gold transactions so as to avoid market disturbances." The expected transactions were of course sales (the first CBGA was signed after the UK's sudden and clumsy gold sales announcement of mid-1999), but this treaty only offers further cover for delaying, going slow, or otherwise tempering the impact of buying.   An object lesson in central-bank recaltricance is the repatriation of Germany's gold. Wanting some 300 tonnes from New York and 374 from Paris, the Bundesbank's plan announced in January 2013 is scheduled for completion in 2020. Yet last year, only 5% of that total was shipped, barely one-third the average run rate required. Whatever the reasons, there really isn't any hurry, not for the central bankers involved at either end of the transfer.   As for retrieving Switzerland's current overseas gold holdings, we're given to believe the Bank of England can "dig out" a 20-tonne shipment every two days. So if 20% of the SNB's metal is still there in London, it could expect to get back the UK holdings inside 1 month. But only if the Bank of England devotes its entire vault staff to that task alone (it holds another 5,000 or so tonnes belonging to other customers besides the UK Treasury), and only if central-banking's "old world" handshakes and winks are thrown over to appease public opinion.   Again, don't bet on it. Central bankers have fat brass necks when it comes to defending themselves under cover of mutual independence from national governments and their voting publics. So might history offer some clues to the timing of Swiss buying?   Sucking in foreign money around WWII, and with exchange controls blocking many citizens abroad from buying investment bullion, Switzerland's own gold reserves grew from 450 tonnes to 1,940 between 1940 and 1960. The sales starting 2000 took eight years to dispose of that much again, this time into a bullish free market (and again, after a public vote). Now something around 220 tonnes per year might be wanted – sizeable quantities to be sure, but in line with recent sources of demand like gold miners buying back the huge forward sales they'd made to insure against lower prices at the turn of the century (dehedging averaged 260 tonnes per year between 2000 and 2012) or the growth rate of new Chinese consumer demand (100 tonnes per year 2004 to 2013).   That extra demand, however, came during a strong bull market in prices. Miner dehedging in particular put a strong bid in the market, helping drive prices higher both mechanically (see the spike of early 2006 for instance) and psychologically (if gold-miner hedging had been bad for investor sentiment, then de-hedging could only be good). Many people now believe that forcing the SNB to hold 20% of its assets as gold will clearly drive market prices higher. Added to the repatriation of all Switzerland's existing gold reserves...which could catch the cosy world of central banking asleep as Swiss law demands the gold is returned...it is expected to spark a huge squeeze on physical supplies worldwide.   We're not so sure. Heavy central-bank gold sales during the 1990s are widely held to have pushed gold prices down. But those sales continued until the financial crisis began. By then, gold prices were 3 times higher from their lows of 2001, replaying what happened in the late 1970s, when the US Treasury was a big seller. Relatively heavy purchases – this time by emerging-market states – then coincided with the 2011 peak. But again, those purchases have continued as prices fell steeply.   Yes, back in 1998-2000, the Swiss gold sales discussed and then begun at the turn of this century helped drive the final nails into gold's coffin-lid. But sandbagging the price, and dismaying dealers (as well as "bitter end" investors enduring the two-decade bear market starting with 1980's peak at $850 per ounce), those huge sales in fact laid the floor for the 12-year bull market which followed.   Free from central-bank vaults like no time since before the First World War, gold rose and kept rising as private Western households, then Asian consumers, money managers and emerging-market central banks joined the gold miners themselves in buying bullion.   Gold is nearly as rich in irony as it is in politics. If the Swiss pro-gold campaign is trying to gerrymander a price-rise by forcing the SNB to turn buyer, history may yet – we fear – have the last laugh.

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Gold Prices "Bullish", Sidestep "Deadly Mix" of Rising Dollar & Rates as Euro Stock Markets Tumble Again, Central Banks Ready Stimulus

GOLD PRICES ticked higher to 3-session highs Monday lunchtime in London, touching $1246 per ounce as European stock markets reversed half of Friday's big bounce.   France's CAC40 share index stood more than 10% lower for October so far, while the gold price in Euros held 2.0% higher as the Dollar edged back today on the currency market.   After policymakers from the US Fed and Bank of England said last week that QE and low-rate stimulus may be maintained much longer yet, the European Central Bank was today rumored to have begun buying commercial bank debt in the open market as part of its "asset purchase" scheme, aimed at boosting the ECB's own balance-sheet by €1 trillion in a bid to avoid deflation for the 18-nation currency zone through monetary stimulus.   Expectations that China's central bank will inject short-term loans into major banks this week drove Beijing's 1-year money market rate down to 2.99% – its lowest level in 25 months – reports Bloomberg News.   "On a weekly basis," says technical gold price analysis from market-making bullion bank Scotia Mocatta's New York team, "we remain focused on [mid-Oct]'s bullish outside reversal candle formation followed by [last] week's gain."   Thanks to last week's late rally in world stock markets however, "We are expecting $1250 to form a strong resistance," says a note from refining and finance group MKS, pegging short-term support in gold at $1220-1225.   "Further improvements to the global macro climate may see gold test towards $1200," it adds.   A stronger Dollar and rising US interest rates – over and above inflation – would offer "a deadly mix" for gold prices, says a cross-asset research note from French bank and London bullion market-maker Societe Generale.   "With the recent acceleration in US economic growth," it says, "we expect the market to start pricing in a much faster pace of US rate hikes than currently discounted...[and] are implementing our strong Dollar view in commodities by shorting gold."   Short bets against gold were cut last week by hedge funds and other large speculators using Comex futures and options contracts, latest data from US regulators showed Friday.   That same group's bullish betting rose for the second week running from four-month lows.   So-called "non-reportable" positions, in contrast – meaning smaller and private-investor accounts – grew their net betting against gold to the equivalent of 20 tonnes, the largest "net short" for small speculators in gold since the UK's shock gold-sales announcement of May 1999.   "Gold prices always suffer from US Dollar strengthening," says SocGen's analysis, citing an "84% correlation since 2012."   Over the last 45 years, analysis by BullionVault shows, gold priced in the US currency has moved in the opposite direction to the Dollar's trade-weighted index against other major currencies some 60% of the time on a rolling 12-month basis.   Chinese gold prices ended Monday unchanged at the Shanghai Gold Exchange, putting the main wholesale contract's premium over London prices at a 1-month low beneath $1 per ounce.   New York's giant iShares Silver Trust (NYSEArca:SLV) shed metal again on Friday, taking the quantity of bullion needed to back its shares to a 1-month low of 10,681 tonnes – some 2% below the record high seen at the start of October.   Priced against silver, gold today held above 71 ounces – a five-year high – for the fourth trading day in succession.   The price of platinum – like silver, primarily an industrial metal – meantime rallied further on Monday from last week's 5-year lows, extending its premium over gold prices towards $25 per ounce after hitting parity for the first time since April 2013.   Crude oil meantime rallied for a third day after dropping 17% in three weeks, but agricultural commodities fell hard and major-government bond prices rose once again, pushing market interest rates down.   Gold's benchmark "Fixing" mechanism will be discussed this Friday at a seminar in the City of London, with wholesale market participants reviewing 8 proposals to replace the 95-year old process.

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