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Gold Bullion Whipped by Dollar-Euro 'Decoupling' as US Jobs Data Boost Fed Rate-Hike Outlook

BULLION prices whipped hard on the release of new US jobs data Friday, with gold initially spiking to recover this week's losses before dropping to fresh lows for the day beneath $1120 per ounce.   Losing 1.1% from last Friday in Dollar terms, wholesale gold bullion swung that much inside 60 minutes for Euro investors after the US Bureau of Labor Statistics said non-farm payrolls grew less than expected in August, but the overall jobless rate fell to a 7-year low of 5.1%.   "More than 12 million jobs have been added since the trough in early 2010," said US Federal Reserve voting member Jeffrey Lacker earlier, giving a speech entitled 'The Case Against Further Delay'.   "It's time to align our monetary policy with the significant progress we have made."   The odds of the US Federal Reserve raising interest rates from zero for the first time since 2008 at its September meeting rose to 34% from 26% before the data, according to futures market prices, with the odds of a first hike in October or December rising to 46% and 62% respectively.   But "while the Federal Reserve is succeeding in the employment part of its dual mandate," says a blog at US bond-fund giant Pimco, "it is significantly undershooting the inflation part", with the Fed's own preferred PCE measure reading just 0.3% against the 2.0% per year target, and only 1.2% when 'volatile' fuel and food are excluded.   Silver held firmer than gold bullion Friday, ending the week unchanged at $14.60 but fading 2.5% from yesterday's sudden spike near $15 per ounce.   Last month's rally in gold came as "Fading expectations of a September Federal Reserve rate hike, the decline in the dollar index [and] the approaching peak seasonal demand period further supported prices," says a report from commodities analysts at French investment and bullion bank Societe Generale.   But now forecasting 2016's average at $1000 per ounce, however, SocGen's natural resources research team put gold some 12% below where the futures market currently predicts next year's prices – one of only 5 bearish calls across the entire commodities complex.   In Dollar terms, "Gold has fallen back into a bearish trend channel that commenced in May," said a technical note from bullion bank Scotia Mocatta overnight.   "Given the failure to make a new high on the last rally, and the overall bearish long-term technical posture, we expect gold to test the lower range of the channel and the $1072 lows from July."   For Eurozone investors, "The ECB's QE will ensure a degree of uncoupling of monetary conditions from those in the US in coming weeks/months," says French investment and bullion bank Natixis, noting how the European Central Bank decided Thursday to raise from 25% to 33% the proportion of any one Euro nation's bonds in issue which it can buy with QE – meaning it "now has free rein to be able to increase the size of its Asset Purchase Program."   "Our economists [also] believe the ECB will further loosen its monetary policy," writes Carsten Fritsch, precious metals analyst at Commerzbank in Frankfurt, "and may already do so at its meeting in December."   With Eurozone QE increased to buy more than the current €60 billion of government bonds each month, "This would suggest a significantly higher gold price in Euros," says Fritsch, "even though the price response to what virtually amounts to an announcement of 'QE2' [at Thursday's ECB press conference] was subdued."

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Gold Price Drops to 1-Week Dollar Low as ECB Cuts Eurozone Inflation & Growth Forecasts

GOLD PRICES fell to a 1-week low at $1122 per ounce in London trade Thursday as the US Dollar rose on the FX market following a cut to the European Central Bank's outlook for inflation and growth in its 330-million citizen currency zone.   Euro gold prices bounced €10 per ounce to recover last week's closing level of €1110 as the single currency fell.   With US jobs data due Friday, "Investors are just waiting on the sidelines to see what the Fed will decide" about raising US interest rates from 0% when it meets in a fortnight, Reuters quoted consultancy Capital Economics' analyst Simona Gambarini overnight.   Futures contracts on the Fed Funds rate now put the odds of a hike at this month's policy meeting at one-in-three.   "The probability of a September hike has ticked upwards from [last week's] low levels," notes Japanese conglomerate Mitsubishi's analyst Jonathan Butler, but "confusion" amongst Fed policymakers "serves to confirm that rates will remain lower for longer.   "Once an initial rise has been fully priced into gold and its sister metals, the complex stands to make some gains."   Expectations of a US Fed rate hike, combined with "concerns about the growth transition in China [and] an increase in risk aversion" mean that "downside risks to the outlook have risen," said the International Monetary Fund in a briefing note for G20 ministers and central bankers meeting in Ankara, Turkey tomorrow, cutting its 2015 global GDP growth forecast to 3.3% from the 4% forecast a year ago.   "Renewed downside risks have emerged to the outlook for growth and inflation," agreed European Central Bank president Mario Draghi today, holding ECB rates at record lows of 0.05% after today's policy vote in Frankfurt.   With 1 year left in the ECB's current €60 billion per month QE bond buying, "There was no discussion on changing size or pace of the purchase programme today," Draghi's team tweeted during his scheduled press conference.   Gold prices "edged sideways" in earlier Asian trade Thursday, says the dealing desk at Swiss refining and finance group MKS, "as the Chinese took their first day of a two-day holiday" to mark 70 years since China's victory over Japan.   "Leading into tomorrow's NFP release," says MKS of the US jobs data due Friday, "$1125 is an important support" for the gold price "if it is to break higher to test $1150."   Gold imports to No.2 gold-buying nation India are set to drop 10% in 2015 from last year thanks to weak monsoon rains and a poor harvest, reckons Ketan Shroff of trade body the India Bullion and Jewellers Association.   Silver bullion imports to India have so far jumped 50% against the first 8 months of 2014, note specialist analysts at Metals Focus, HQ'ed in London.

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Bullion Horror! Gold Miner Hedging Returns

Gold bullion is being borrowed and sold into the market, says market chatter...   GOLD BULLION might only have recovered a little from this summer's new 5-year lows, but the cost of borrowing it through London's wholesale market is rising enough to make headlines, writes Adrian Ash at BullionVault.   The cause, according to the Financial Times, is "dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India," the world's No.2 gold-buying nation behind China.   But finally catching up with emails from last week's holiday today, I found rumours claiming that gold miners were driving this 'tightness' in bullion borrowing costs. Because they used August's jump in prices to start hedging their production.   Hedging is when a producer sells future output at today's prices. And here in September 2015 – some $800 per ounce below the peak of four years ago – "the selling continues unabated," says one London bullion desk.   Like claims that dealers are borrowing gold to ship to Asia, this note points to action in the Gold Forward curve. It shows the cost of borrowing metal today to return again at some point in the future. Only, this being the professional bullion market, it actually tracks the cost of lending out metal and getting it back some time in the future, putting the cash received meantime on deposit to earn a rate of interest.    Higher levels thus mean lower demand to borrow metal, through higher costs to gold owners wanting to earn interest on cash instead. Whereas right now, the far-forward curve "is getting crushed" says one note – signalling strong demand to borrow metal – and "mainly relates to miners forward hedging."    "This is what is currently holding prices back," another desk reckons. And Monday brought confirmation that at least one smaller gold miner has taken the chance to lock in current prices for some of its future output.    Mid-tier Australian miner Evolution (ASX:EVN) says that it's sold 300,000 ounces forward for delivery between June 2016 and end-2019.   Big news? Several smaller players have already been hedging since the 2013 crash. Overall, the industry was a net de-hedger in the first 3 months of this year. And at just 25 tonnes in total, Evolution's overall hedge book now equals less than 25% of its expected output over the next 5 years.   Maybe one or two other miners are doing the same. But if this is driving the uptick in gold borrowing costs, we are still a long way from the hedging mania which swept the gold-mining industry at the depths of the 1990s' bear market. A very long way away.    Back then, the global gold mining industry built up forward sales equal to well over 12 months of world production. The impact, when prices started to rise in 2001, was dramatic. Because having locked in the lowest prices since the late 1970s, the mining industry suddenly scrambled to buy back its hedges...helping drive the price higher again...forcing more miners to try and buy back their hedges as well.    Shareholders hated it, of course. First because those forward sales seemed to help worsen the bear market. Then because it meant that their equity investments –instead of rising on the back of rising prices after 2001 – were hamstrung by hedging deals struck at lower levels which cost money to close.    For managing cash-flow, a little hedging seems wise in any productive business. Evolution's new move is "eminently sensible" agrees a note from ICBC Standard Bank today. Especially because Evolution – which mines exclusively in Australia – currently enjoys gold prices near 3-year highs in Aussie Dollar terms.    EVN's stockholders seem to like it too, pushing the shares 5% higher on Wednesday and extending the rally from last week's nasty drop to more than 20%.   The big question for gold bullion investors and traders is whether – or when – the big boys start hedging as well.   Arch-hedger and world No.1 miner Barrick (NYSE:ABX) famously locked in prices at the late 1990s' lows, only to buy them back and help push up prices over the next 10 years. Its current chairman, John Thornton, said this May that hedging "just makes sense" to him.   Maybe. Should gold prices keep rising as the US Fed delays its rate hike – and China's slowdown whacks other financial assets – new hedging by miners outside the US could present a headwind to further gains.    But the long-term outlook for gold mining output says annual production is likely to peak this year, and then start slipping from these record-high levels. Some analysts put known reserves still below-ground at 20 years of production. And as Societe Generale's bullion desk notes, the American Chemical Society includes gold – like silver – on its Periodic Table of Endangered Elements facing serious supply problems in future.   Expecting a boom in recycling, 'Buy refiners, not miners' is SocGen's quick off-the-cuff conclusion.    Naturally, 'buy gold' would be ours here at BullionVault.

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Gold Bullion 'Set to Test 2015 Downtrend' as Indian Imports Defy Poor Monsoon

GOLD BULLION prices slipped to 2-day lows of $1132 per ounce late in London trade Wednesday, retreating 1.3% from yesterday's 1-week high as Western stock markets crept higher but commodity prices fell yet again.   "Support for the yellow metal was evident around $1135" in Asian trade overnight, said a note from Swiss refining and finance group MKS.   With the Shanghai gold market now closed until next week for China's WWII Victory Day commemorations, "Gold looks range bound leading into Friday's [US jobs] report," MKS says.   Holding above its 20-day moving average however – now at $1124 per ounce – gold "remains well placed to test the 2015 downtrend at $1163," says the latest Bullion Weekly Technicals from Karen Jones at Germany's Commerzbank.   "It is hard to get too bullish," countered a daily technical analysis from bullion market maker Scotia Mocatta, "considering [that] falls are more significant than the bounces.   "We believe this is a consolidation situation with only a breach of $1168 bringing in fresh buying."   "Physical markets remain somewhat subdued," agreed a London trading desk Wednesday.   Bullion analyst Matt Turner at Australia's Macquarie bank meantime highlighted "the potential for near-term gold weakness," pointing first to how gold has only rallied during US Fed rate-hiking cycles "after the tightening begins and is gradual," and also how physical demand in major consumers India and China "face potential challenges".   Monsoon rains in India – the world's No.2 gold buying nation – will finish well below average in 2015, the Meteorological Department said Wednesday, potentially denting farming incomes.   "Given that rural households account for the lion share of Indian gold demand," said a recent report from analysts Metals Focus, "it is not surprising that jewellers [had] been cautious about increasing stocks."   Gold imports to India, however, jumped this summer as wholesalers stocked up at 5-year low prices ahead of the traditional post-harvest festival season culminating with Diwali in November.   India imported 69 tonnes of gold bullion from Switzerland in July, according to Swiss trade data, and the major Indian airfreight hub of Ahmedabad alone saw August inflows double from a year earlier to almost 16 tonnes.   Solid trading in the Shanghai Gold Exchange's major domestic contract meantime saw wholesale bullion delivered in China close at a strong $6 per ounce premium to London quotes, incentivising new imports to the world's No.1 consumer nation.   Ahead of the Victory Day shutdown in Chinese markets, the SGE's main international contract – dealt for Yuan held in offshore accounts – in contrast recorded zero volume for the third time since early July.

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Gold Price Hits 1-Week High as Dow Sinks 400 Points, 'Zero Chance' of Fed Rate Hike After Weakest China Data in 3 Years

GOLD PRICES touched 1-week highs of $1145 per ounce Tuesday as world stock markets fell sharply again and New York's Dow Jones index dropped almost 400 points at the open.   Gaining1.0% from last weekend, wholesale gold bullion for London delivery found a clearing price on solid volume of $1141.90 per ounce at Tuesday morning's LBMA Gold Price auction.   That was a five-year low when first reached in mid-July.   China's stock market meantime closed Tuesday 1.6% lower after new data showed manufacturing activity in the world's second largest economy shrinking at the fastest pace since 2012.   Western equities fell harder, dragging Eurozone markets well over 2% down as crude oil slumped more than 4%, and major government bond prices rose, pushing market interest rates down.   Shares in global hedge-fund managers Man Group (LON:EMG) dropped 5.8% – more than twice the London FTSE's broader drop – amid reports that its Chinese division's chairwoman, Yi Lifei, has been detained by Chinese police investigating insider trading and "false information" causing "panic and disorder" during last week's dramatic drop in Shanghai's stock market.   After cutting interest rates and pumping $200 billion into the stock market since it began crashing 40% from June's 7-year peak, Beijing today urging listed companies to issue cash dividends, go on a mergers & acquisition spree, and buy back their own shares in a bid "to push forward reforms of State-owned enterprises and promote the steady and healthy development of the capital market," according to official newspaper China Daily.   Shanghai gold premiums, over and above comparable London quotes, eased back on quieter volumes, but held near $3 per ounce after turning negative amid last week's 'Black Monday' equity turmoil for the first time since early July.   "Only a definite move above $1163/1173 will mean further recovery," says Stephanie Aymes, head of technical analysis at French investment bank and bullion market-maker Societe Generale, pointing to the gold price's "multi-month descending trend."   "Our view," says Tom Kendall at Chinese-owned ICBC Standard Bank in London, "remains that...another test of the resistance area around $1162/65 is likely.   "The prospects of a September US rate rise are close to zero, and...[bearish traders] continue to cover in the run up to the FOMC meeting."   Latest data from US regulators the CFTC show hedge fund and other speculative traders retreating for the fifth week running from end-July's record large bearish betting against gold prices.   The single Euro currency ticked higher against the Dollar on Tuesday, but held almost 5 cents below last week's sudden 2015 high above $1.17 – a peak swiftly lost as US Fed policymakers told the annual Jackson Hole central bankers' conference that they intend to push ahead with raising interest rates from zero despite the stockmarket turmoil.   The Fed's first rate rise since 2006 "is now looking more likely in December than September," Bloomberg quotes economist Vyanne Lai at National Australia Bank Ltd. in Melbourne today.   "[So] gold prices may follow a gentler declining trend than previously expected, but the market remains entrenched in a bearish cycle."   But "given the mounting problems" in equity markets, counters Singapore brokerage Phillip Futures, "it is unlikely that gold may dip drastically in the near term.   "The momentum right now is for gold to rally more than to fall."

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