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Gold Bullion Bounces from 2014 Lows But "Lacks China Support" Against "Bullish Dollar"

GOLD BULLION rallied 0.9% from yesterday's new 2014 lows in Dollar terms in London on Wednesday, rising as European stock markets began the third quarter with a loss.   New data from private-sector ADP Payrolls said the US economy added 213,000 net jobs in September, in line with analysts forecasts.   The government's non-farm payrolls estimate – a key event for gold price volatility – is due Friday.   The Euro meantime held near two-years to the Dollar at $1.26, while Brent crude oil steadied at $95 per barrel, but corn prices extended their drop to new 5-year lows.   "With China on holiday" for the National Day start to Golden Week, says one Asian trading desk, "we saw little in the way of physical support" overnight, allowing gold bullion prices to dip below $1205 per ounce for the second time in two days.   Student leaders in Hong Kong's pro-democracy protests today demanded that the city's chief executive, C.Y.Leung, stand down by Thursday.   Crowds were reported to be gathering in Macau – the other "special administrative region" in China, the world's No.1 gold-buying nation in 2013 – to show their support.   "The reason for the price slide" in precious metals, says Commerzbank's commodity analysts, "[is] the significantly appreciating US Dollar."   Whilst the US Federal Reserve is set to end its QE asset purchases this month, says bullion market maker and former London Fixing member Deutsche Bank – preparing the markets for a rate hike in the first half of 2015 – "We expect the ECB will in contrast announce QE over the same period."   That divergence "will be US Dollar bullish and long-term bearish for gold," say Deutsche's analysts, adding that "over the past 20 years, the US Dollar has typically rallied by between 5-10% in the six to nine months before the Fed embarks on a new tightening cycle."    "Overall," agrees the London office of brokers Marex Spectron, "the pressure will remain on the [precious metals] complex, and with the Dollar's continued strength, we remain sellers of rallies."   As silver prices bounced from fresh 4.5-year lows beneath $17 per ounce on Wednesday, platinum prices today slid to new 5-year lows, dropping 15% from July's one-year high.   Platinum's premium to gold fell this morning to $65 per ounce – the lowest level in nearly 12 months, and markedly below the near $200 premium seen at New Year.   Used primarily in auto catalysts by the motor industry, "Platinum fundamentals do not justify prices below $1300," says Swiss bank UBS, "and the current weakness should be viewed as a buying opportunity."    "We view platinum price as too low at $1300," agrees South Africa's Standard Bank – whose commodities unit is 60% owned by China's ICBC, the world's largest bank by assets – although "we don't expect it to rise much above $1400 anytime soon."   Looking at gold bullion, prices "will struggle to gain upside in the next two quarters" to spring 2015, Standard Bank goes on in its latest Global Commodities review.   Any "stronger physical demand from Asia on the back of seasonal trends" will fail to drive prices higher, the research says. "Short-covering rallies" led by bearish traders closing their bets against gold "will ultimately fade."

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Gold Prices Killed by Not-So "Super" Dollar

Gold prices have been hammered by the rising US Dollar. What might October hold...?   DOLLAR UP, gold down, writes Adrian Ash at BullionVault.   That's pretty much the lesson for precious metals investors looking at any long-term rise in the US Dollar since exchange rates began floating in 1973.   And now in late 2014, says former chief economist at Swiss bank UBS, George Magnus "It looks as though the third US Dollar uptrend of the post-Bretton Woods era may be underway." Just so long as you also ignore his warning against "extrapolating" short-term noise into long-term forecasts... Might Magnus be right? For gold prices, as the chart shows, it's less the absolute level than the Dollar's direction of travel that counts. Starting from all-time lows in spring 2011, today's greenback hardly matches the "Super Dollar" of the early 1980s. Yet the background rhymes... Commodities glut after a long bull market? Check... Disinflation in consumer prices? Check... Weak competitor economies in Europe? Check... Over-borrowed emerging markets? Check... Strong US monetary policy, raising rates on the Dollar? Well, no. Not by a long way. Even with the Federal Reserve still sticking however to its "considerable" delay for raising rates from zero, the third-quarter of 2014 proved ugly for Dollar investors holding non-US assets.   Gold for US investors marked the end of Q3 by hitting new 2014 lows, losing 5.8% on the London PM Fix for the month of September alone. Silver fell to the lowest Dollar price since May 2010...down more than 12% from the end of August.   Yet gold priced in Euros, in contrast, remains near the top of its 12-month range. Even in the British Pound...flattered by Tuesday's GDP revisions...gold has held 3% higher from New Year.   Gold's recent drop, in other words, is entirely relative. And this split between Dollar and non-Dollar gold prices might widen in October.   First there is the European Central Bank's meeting concluding Thursday. Mario Draghi and his team have long hinted at some kind of QE-style money printing. The latest inflation print of just 0.3% per year across the 18-nation union will loom large.   Then, in the last week of October, the US Federal Reserve will face the opposite problem. It is set to taper the last $15 billion of its monthly QE printing. That leaves rising inflation, and strong GDP, begging for an end to the "extended time" promised for zero US interest rates.    Before then, we've got US jobs data Friday (with an early look in ADP's private-sector estimate mid-week). Then, mid-month, the European Court of Justice will hear a legal challenge to the Eurozone central bank's Outright Monetary Transactions (OMT)...the 2012 plan which finally stemmed the single currency's debt crisis.    Mario Draghi hasn't actually fired any OMT money at weak-economy bonds yet. But if the Court decides the plan is illegal (insomniacs will enjoy reading the arguments here. Or better still here) it could spark fresh panic...out of Greek, Spanish and other debt-heavy markets...pulling the Euro lower again.    Analysts are of course aligned with the Euro bears betting against the currency in the forex market. Barclays Bank today cut its 12-month forecast for EUR/USD from $1.25 to $1.10 – a move which, if matched by the Dollar's other major crosses, would take the trade-weighted index to a decade high of 90 or so. Gold prices in 2004 were trading below $400 per ounce. So a blunt analysis, never mind the momentum in gold futures and options betting, says a fall in the Euro must push bullion prices lower again as the US Dollar surges. After all, it worked like clockwork in the other direction.   "Gold up, Dollar down" was so solid between 2002 and 2008, it became a no-brainer trade for no-brain hedge funds. The US currency fell 30% against its major trading peers on the forex market. Gold meantime rose 160% in Dollar terms. But this relationship broke down during the financial crisis. Because gold kept rising...and rising...while the Dollar whipped higher.   What are the odds today? Playing the averages, and reviewing the last 40 years (daily data, 12-month change), gold has been twice as likely to rise when the US currency is weakening on the forex market than when the Dollar Index is getting stronger. And when gold drops hard...down 10% or more from 12 months before...the Dollar has been rising 91% of the time.   No-brain traders are betting this rule-of-thumb will hold firm as 2014 ends, and gold will keep falling in Dollar terms as the US currency gains versus the Euro, Yen, Pound and the rest.    But watch out. Because since 1974, gold and the Dollar have also moved in the same direction some 30% of the time. And when gold rises as the Dollar also goes up (21% of the last 40 years), its gains have been markedly better on average than when the Dollar is falling.    Yes, really. When gold has risen against a background of Dollar strength, gold priced in Dollars has gained 24% year-on-year on average. It's averaged 18% gains when the Dollar's been falling.    Of course, investors tend to buy gold and the Dollar together when crisis hits. Not only, but not always either. You could cite any number of crises where gold failed to rise with the Dollar, and pitch them against the gold price surge of Soviet Russia invading Afghanistan in 1979, the 2008 Lehmans crash, or the 2010 Eurozone meltdown.   Never mind if those events sound at all familiar here in late 2014. Ignore the fact that a rising Dollar...plus rising gold...adds up to 30% more fun for non-US investors trying to defend their money against crisis. Financial markets have avoided seeing any trouble ahead all year. So far. As an investment banker puts it to the Financial Times today...applauding this year's surge in global mergers and acquisitions..."I have never seen a market more resilient than it is today, in terms of absorbing geopolitical and financial risk."   Such complacency is the reason gold investing exists, whatever the outlook for the Dollar (and "Everything seems to be Dollar positive," says another forex strategist...also tempting fate).

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Gold Prices Drop 6% in Sept, Silver Down 12% as Dollar Jumps, Bugs Face "Boredom or Despair" Says Gartman

GOLD PRICES fell hard against the Dollar mid-morning Tuesday in London, sinking to fresh 2014 lows as the US currency rose again.   The Dollar extended its rise vs. the Euro to new two-year highs after last month's Eurozone inflation was reported at just 0.3% annually across the 18-nation currency union.   Recording their lowest London Fix since New Year's Eve at $1210 per ounce, Dollar gold prices stood 6.3% down for September – the sharpest 1-month drop since June 2013's fall of 14%.   Silver prices followed gold lower in Dollar, hitting their lowest London midday price (formerly known as the Silver Fix) since 26 March 2010 at $17.11 per ounce for a 1-month drop of 12.1%.   "Until such time as the 'Gold Bugs' finally give up and exit their trades, the next bull market in gold will not begin," says Dennis Gartman, editor of eponymous tip-sheet the Gartman Letter.    "The market wants to take out the true-believers before gold goes higher. It shall be either boredom or despair that shall take the 'Bugs' out. We hope for the former; we fear the latter."   The surging Dollar today left gold prices for UK investors at only 3-session lows above £745 per ounce in London trade.   Euro gold prices were little changed on the day, less than 5% below the last 12 months' high.   Looking at Dollar gold prices, Bloomberg quotes Chinese brokerage Citics Futures' analyst Zhu Runyu, "The divergence in monetary policies between the Fed and other central banks will further push up the Dollar and weigh on gold.   "As geopolitical tensions fade, gold has also lost a key price support this year."   Over in Asia – where Shanghai gold trading was the quietest in three weeks as the Golden Week holidays began – the Hang Seng equity index fell hard for the fifth day running on Tuesday as Hong Kong's pro-democracy protests continued.   The Hang Seng closed September almost 10% below the 6-year high hit at the start of this month.   Even with riot police pulling back and the protests remained peaceful overnight, Chow Tai Fook – the world's largest jewelry retail chain – said today it's keeping some 20 stores in the city closed.   Global equities meantime showed their worst quarter since the Euro debt crisis peaked in late 2012, and crude oil meantime neared its worst 1-month drop since 2012 on what some analysts called "a glut of supply".   The fall in Europe's Brent contracts, reckons Commerzbank's commodities team, was "largely speculatively driven".

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Singapore Kilobar Gold Contract To Launch in October 2014

Singapore, Monday, 29 September 2014 International Enterprise (IE) Singapore, Singapore Bullion Market Association (SBMA), Singapore Exchange (SGX) and the World Gold Council, today announced that the new exchange-traded Singapore Kilobar Gold Contract (“Contract”) will launch on Monday, 13 October 2014. The Contract is the first wholesale 25 kilobar gold contract to be offered...

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Gold Bullion "Faces Aggressive Shorting" as Hong Kong Protests Grow Ahead of China's Golden Week Holidays, US Jobs Data Loom

GOLD BULLION prices rose to $1223 per ounce in London on Monday, 0.4% higher from last week's close, before slipping back as world stock markets cut their earlier losses.   Hong Kong's main stock index lost 2.0% as pro-democracy protests spread across the city.   The US Dollar dropped from new 4-year highs on the currency market, helping food commodities bounce from multi-year lows.   Silver dropped in early Asian trade, before tracking gold bullion's rally to stand unchanged from Friday's finish above $17.60 per ounce.   "Quiet physical demand in China this week could leave gold lacking crucial support," writes Jonanthan Butler at Japanese conglomerate Mitsubishi, pointing to the Golden Week holidays starting Tuesday.   "Though short covering may offer upside," Butler adds, noting heavy bearish betting by speculative traders in US futures and options, "quarter-end squaring may leave investors with little appetite for gold in the coming days."   Tuesday also marks the new Martyrs' Day in China, aimed "to commemorate those who sacrificed for their country," according to the New York Times.   Tens of thousands of protesters continued to block Hong Kong's main business district Monday, extending the weekend's march against Beijing's refusal to allow a free choice of candidates in the city's 2017 leadership elections.   Beijing's censorship of social media site Weibo hit new record levels during this weekend's protests, says the South China Morning Post.   "Usually a lot of Chinese tourists come to Hong Kong for the holiday," Reuters quotes German bullion refining group Heraeus' general manager in the city, Dick Poon.   "[Typically] they end up buying jewellery, but this time they might be turned off by the protests."   This week's absence of China's wholesale dealers, says Swiss refiner MKS's Asian desk, "could heap added pressure on gold," especially if "combined with another strong US payrolls figure expected this Friday.   "This is a very similar scenario to last year where gold was aggressively sold by speculators during the absence of the Chinese."   Consensus forecasts for Friday's US employment data say 203,000 net jobs were added to non-farm payrolls this month, reversing August's shock reading of just 142,000.   Thursday's European Central Bank decision "could weaken the Euro and strengthen the Dollar," adds Butler at Mitsubishi. "[But] the impact of this on bullion prices could be offset could be offset by safe-haven buying of physical gold."

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End of the Central Bank Gold Agreement

Well, end of one CBGA, start of another. Which says a lot about the Eurozone crisis...   THIS isn't your father's gold market, writes Adrian Ash at BullionVault. It isn't even the same market as 10 years ago.   Because the buyers are different. So too are the sellers.    During the 1970s, demand was led by investors...primarily in the rich West. Whereas today, the biggest buyers by far are Asian consumers, as the World Gold Council notes in its latest Gold Investor report.   Despite much lower incomes, India and China save a huge proportion of their earnings...and spend an ever greater share on gold the more income they earn.    This makes it a "superior good" says Professor Avinash Persaud. Commissioned by the World Gold Council to study world gold buying demand, he says it increases faster than household income or GDP...something we've noted of Chinese gold demand before.    On the supply side too, the gold world has changed. Besides a small rise to record mining output, the key source of the last 5 years was "scrap" sales from people needing to raise cash amid the financial crisis (a flow that's now drying up. Fast). During the 1980s and 1990s, in contrast, central banks were the big source of existing above-ground metal, selling it down as prices fell...and worsening the drop by helping gold miners "hedge" their production by lending them metal to sell as well.    Instead of the gold, Western central banks bought more "productive" assets. You know, like US Dollars, Euros, and government debt.    Come the financial crisis however, central banks as a group worldwide turned into net buyers for the first time since the mid-1960s. First because emerging-market nations wanted to lose some of the Dollars piling up in their vaults (thanks to America's perpetual trade deficit). Second because Western central banks...most notably in Europe...decided that selling gold during a crisis isn't so clever.    So, despite having an agreement in place to cap annual sales...aimed at avoiding the clumsy, price-damaging gold sales made by the UK in 1999...central banks in the West have stopped selling gold altogether. We think that's likely to stay true all through the new 5-year agreement, signed in May and running from tomorrow until September 2019.    The current CBGA (as we gold nerds know it) has seen European states sell barely 10% of their agreed limit. The new agreement doesn't bother setting a cap at all. That might suggest they're secretly planning big sales in future. But on the contrary, the lack of sales under the current CBGA made its 400 tonnes per year limit look stupid.    Fewer than 18 tonnes were sold over the last 3 years in total...all of them from the German Bundesbank to mint commemorative coins.    Just what would be the point of setting a sales limit from here? Fact is, central banks sell gold when times are good. They buy or hold when things are bad. They are not selling today.   We don't think Eurozone central bank chiefs have any plans to sell until 2019 at the soonest. We do think there's a message in there about the Eurozone crisis.

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