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Gold Prices Near 4-Year Weekly High as $4 Trillion of US Debt Faces Bond Market

February 17, 2018
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GOLD PRICES neared their highest weekly finish against the Dollar in almost 4 years on Friday, trading 3.0% up for the week as the US currency extended its drop on the FX market.
 
Friday morning’s benchmarking auction in London set the highest AM gold price since late January’s 17-month high, finding a balance of buying and selling demand at $1358.60 per ounce.
 
An afternoon LBMA Gold Price above $1354.25 would mark bullion’s highest weekly finish in US Dollar terms since mid-March 2014.
 
Back then, 10-year US Treasury yields stood at 2.65% against today’s level of 2.88%
 
Two-year yields, in contrast, have jumped from 0.36% to 2.19% in nominal terms, taking shorter-term Dollar interest rates to their highest in almost a decade.
 
Adjusted by inflation, real 2-year rates have risen from minus 1.2% to nearly 0% on the latest US consumer-price index.
 
Only one month since 2012 has seen gold prices avoid a drop from four years’ previously when real 2-year US Treasury yields rose one percentage point or more across the same time-frame.
 
(Read more about the typical, traditional link between gold prices and bond yields here.)
 
Chart of gold price vs. 10-year and 2-year US Treasury bond yields. Source: St.Louis Fed
 
Holding strong on Thursday despite the start of the Lunar New Year holiday in No.1 gold-consumer nation China, the volume of gold matched at London’s PM benchmarking auction has so far this week beaten January’s daily average by almost 25%.
 
January’s average daily volume was already the strongest since Donald Trump’s election victory of November 2016 according to data from the process’s independent administrators IBA.
 
January saw London’s afternoon benchmark gold price set its highest monthly average since August 2013 at $1345 per ounce.
 
Outside the Dollar however, gold prices continued to hold near the lower-end of their recent ranges on Friday, rising to only £966 for UK investors and adding 1.3% for the week in Euro terms to €1088 per ounce.
 
“Can bond markets digest the huge supply of US Treasuries that will be issued this year?” wonders investment director Anthony Doyle in a blog at UK asset management giant M&G.
 
“The US government will have to rollover 28% of its total debt in 2018, equivalent to over $3 trillion in US Treasuries.
 
“In addition, some estimates suggest that the US federal budget deficit is on track to rise to over $1 trillion in 2019.
 
“With the Trump fiscal expansion plans likely to be funded by the issuance of short-term debt, the next few years will see a large increase in US Treasury supply.”

Gold Bullion Touches 'Hurdle at $1356' as Dollar Falls, Tokyo Equities Join Correlation Break

February 16, 2018
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GOLD BULLION hung onto four-fifths of its sharpest 1-day gain since August in London trade on Thursday, holding firm as world stock markets rose again despite longer-term US interest rates holding at multi-year highs after yesterday’s inflation data beat Wall Street forecasts.
 
The Dollar fell again, with the single currency Euro briefing touching $1.25, just shy of end-January’s 3-year high.
 
Snapping a typically strong inverse relationship with interest rates on US bonds, Dollar gold prices have now gained 19.9% even as 2-year Treasury yields have risen one whole percentage point from the start of 2017.
 
Tokyo’s stock market also broke a typically strong inverse correlation on Thursday, rising sharply despite a fresh 14-month high in the Japanese Yen’s exchange-rate with the Dollar.
 
US stock markets opened higher, extending yesterday’s post-inflation data surge, but European equities cut their earlier gains for the day back to 0.7%.
 
“The Yen, which no-one is focusing on, makes me more nervous,” says the ever-gloomy Albert Edwards, strategist at French investment bank Societe Generale.
 
“Huge speculative Yen shorts have been accumulated at a technically important moment,” says Edwards.
 
“That makes it far more likely the Dollar will fall and the Yen quickly surge” now that a multi-year uptrend in the Dollar’s Yen value has been broken at the ¥107.9 level.
 
Priced in the Yen, the US Dollar fell Thursday beneath ¥106.4, down some 5.7% for 2018 so far.
 
Bets on US Fed interest rates rising 4 times or more to end 2018 at 2.25% or above have now swollen by one-third from this time last month, totalling over 6-in-10 of all speculative bets according to data from futures exchange the CME.
 
“Kissing this downtrend [in 10-year US bond yields] has typically been very bad news indeed for equity markets,” says Edwards at SocGen.
 
Chart of 10-year US Treasury yields 3-decade decline. Source: SocGen via ZeroHedge
 
“Whatever the arguments are in favour of tax reform in the US (and there are many),” Edwards adds, blaming Donald Trump’s new budget for worsening the inflation scare and sell-off in bonds, “this is probably the singularly most irresponsible macro-stimulus seen in US history.
 
“To say it is ill-timed and ill-judged would be a massive understatement.”
 
With the US Dollar falling again Thursday, the price of gold touched 3-week highs at $1356 per ounce but slipped in terms of other currencies.
 
The UK gold price in Pounds per ounce retreated £5 from Wednesday’s spike to 1-month highs above £968.
 
Gold priced in Euro terms fell €5 from its highest since 25 January at €1090 per ounce.
 
Closing “sharply higher” on Wednesday, Dollar gold prices now face “new resistance at $1357.60, the September high,” says the latest technical analysis from bullion bank Scotia Mocatta‘s New York office.
 
“Gold has tested the overnight high of $1355 a couple of times,” says Swiss refiner MKS Pamp’s Asian trading note, “[but] volumes are pretty thin with [Shanghai] closed for Chinese New Year.
 
“On the topside, a break above yesterday’s New York high should see the metal testing the January [intraday] high at $1365.”
 
“[After] gold failed to confirm the [longstanding and potentially bullish] multi-year inverse Head and Shoulders [pattern] at $1356,” says a note from Albert Edwards’ technical analysis colleagues at SocGen, posted before Wednesday’s inflation-data spike, “it has started staging a recovery and has crossed above a descending trend.
 
“The next hurdle [still comes] at $1356.”

Start of Chinese New Year Holiday See Gold Bullion Whip on US Inflation Data, Turkey Threatens 'Ottoman Slap'

February 15, 2018
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GOLD BULLION prices fell as the Dollar jumped on stronger-than-expected US inflation data Wednesday, only to recover the drop as fixed-income bond prices fell, pushing longer-term interest rates higher once more.
 
World stock markets also sank and then rallied on the news, with Germany’s Dax regaining a previous 1.0% loss by mid-afternoon in Frankfurt.
 
Gold priced in non-US currencies also spiked lower and then higher, with the cost of bullion for UK investors and Euro buyer setting new 1-week highs above £961 and €1080 per ounce respectively.
 
The official US Consumer Price Index rose 2.1% in January from the same month last year, beating Wall Street forecasts but coming substantially below the 6-year peak hit last February at 2.8% per annum.
 
Chart of gold price year-on-year change vs. US consumer-price inflation rate. Source: St.Louis Fed
 
China’s stock market had earlier risen into the long Lunar New Year holidays, with the Shanghai Shenzen CSI300 index closing the Year of the Rooster some 15.9% higher.
 
That was over 9 percentage points lower however from last month’s 2.5-year high.
 
The US Dollar had already extended its rally ahead of today’s inflation data, hitting a near 3-week high versus the Chinese Yuan overnight to trade 1.6% above last Wednesday’s 2.5-year low.
 
That drop in the Yuan helped curb the premium for gold bullion delivered in Shanghai around $6 per ounce above quotes for London settlement, lower by one-third from the typical incentive for new imports into the world’s No.1 consumer nation.
 
Like the Chinese stock market, the Shanghai Gold Exchange will now stay closed until next Thursday.
 
Household demand, meantime, is likely to see its peak for the year with gift-giving as well as investment purchases of gold bullion bars and coin.
 
“The upcoming Chinese New Year holiday will remove physical demand from the [wholesale] market,” says Swiss refinery group MKS Pamp’s trade Sam Laughlin, speaking to Reuters.
 
“Faster-than-expected inflation pressures would likely persuade higher policy rates across key central banks,” says economist Barnabas Gan at Oversea-Chinese Banking Corp. in Singapore to Bloomberg.
 
“[That will] pressure prices lower, rather than lift gold’s status as an inflation hedge.”
 
The government of Turkey is meantime “in no doubt” that the US wants Greece to attack Turkey, claimed President Recep Tayyip Erdoğan’s advisor Yigit Bulut today.
 
For Greece, it would be like a “fly picking a fight with a giant.”
 
After Turkish warships blocked an Italian oil rig from exploring for natural gas near the divided island of Cyprus, Turkish coast-guard ships on Monday rammed Greek coast-guard ships near the islets of Kardak, just off the Turkish resort of Bodrum.
 
Warning the United States to cease its support for Kurdish fighters in Syria on Tuesday, “It is clear [they] have never experienced an Ottoman slap,” Turkish President Recep Tayyip Erdoğan told his Justice and Development Party (AKP) in parliament.
 
The Lira today edged higher against the Dollar from last week’s 2-month lows, curbing gold bullion prices in the world’s 5th largest consumer nation some 2% below last month’s revisit to November’s fresh all-time record highs.
 
Gold priced in Turkish Lira has risen 5-fold over the last decade as the currency has lost 70% of its US Dollar value.
 
India meantime does not “really need to do tit for tat” with Pakistan forces, said a senior officer today, after the weekend’s attack on its camp in Jammu saw terrorists crossing the disputed border kill 6 soldiers and a civilian in a two-day gun battle
 
“We plan our strategy and we will continue with this.”
 
Allowing for the world No.2 consumer nation’s 10% import duty, wholesale gold premiums in India’s key hub of Ahmedabad today held at $1 per ounce above comparable global quotes says data from the NCDEX exchange.
 
That marked the 11th trading day in succession without dipping to a discount, the longest run of 2018 so far.

Gold Price Gains vs Falling Dollar as Trump's 'Desolation' Budget Leaves GLD Investors Cold

February 13, 2018
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GOLD PRICES rallied again versus the weakening Dollar in London trade on Tuesday, briefly touching $1330 per ounce as the US currency extended its losses after President Trump sent his 2019 fiscal plan to Congress for approval. 
 
“After so stupidly spending $7 trillion in the Middle East, it is now time to start investing in OUR Country!” tweeted Trump on Monday.
 
With the US military this month launching its First Security Force Assistance Brigade to “train, advise, assist, enable and accompany” government forces in Afghanistan, US forces attacked by Russian mercenaries in Syria last week killed perhaps 100 opponents and wounded 200-300 more, Bloomberg News quotes various sources.
 
Russian news agency Kommersant says that friends and family of 4 staff from private military company Wagner confirmed their deaths.
 
The giant SPDR Gold Trust (NYSEArca:GLD), the world’s largest gold-backed exchange traded trust fund vehicle (ETF), meantime ended Monday unchanged in size, needing fewer than 821 tonnes of gold to back its outstanding shares – the lowest level since end-October.
 
Chart of SPDR Gold Trust (NYSEArca:GLD) bullion backing. Source: ExchangeTradedGold
 
Releasing his latest Budget plan on Monday, Trump has now “given up” his hope of balancing US federal spending with tax revenues before 2028 according to the Wall Street Journal, quoting a key White House source.
 
“Combined with a newly passed spending deal and sweeping tax cuts, the [new 2019] budget would see the [annual] federal deficit once again rising past $1 trillion in the near-term,” says Fox News.
 
“Trump’s budget statement calls deficits the harbingers of a ‘desolate’ future,” says the New York Times, “but the White House plan would add $7 trillion to the deficit over the next 10 years.”
 
With the Dollar falling again on Tuesday, the Euro reached 1-week highs above $1.23 while the Japanese Yen extended its surge towards September’s 10-month highs.
 
That held the gold price in Japanese Yen down near Friday’s drop to 8-week lows beneath ¥4,600 per gram.
 
With 2 days until China’s financial markets shut for a week of Lunar New Year holidays, gold prices in Shanghai meantime traded just $5.75 per ounce above comparable London quotes.
 
Reflecting demand and supply in the world’s No.1 gold consumer nation, that incentive for new imports was barely two-thirds of the average premium for Shanghai gold.
 
Over the last month, the premium has averaged just half what it averaged over the month preceding Chinese New Year 2017.
 
Shanghai’s CSI3000 stockmarket index meantime followed Wall Street higher overnight, rallying 1.2% while Hong Kong equities added 1.3% on Tuesday. 
 
Japan’s Topix fell 0.9% however, down for the 10th session in 14, while Eurozone equities lost 0.6% on average by lunchtime in London.
 
India was closed for the Mahashivratri festival.
 
Ten-year US Treasury yields edged lower once again from 2.87% – retreating from that 4-year high for the 6th time in 7 sessions – while UK Gilt yields pushed higher after new data said that consumer-price inflation in the world’s 5th largest national economy again held just shy of November’s 5.5-year high of 3.1% per annum in January, with a “continued upward effect…from all categories of goods and services.”
 
Last week the Bank of England kept its key UK interest rate unchanged at a near all-time low of 0.5% with its QE stimulus asset purchases at a record high of £445bn.
 
The UK gold price in Pounds per ounce rose this morning above £956, touching 1-week highs.
 
Tomorrow brings inflation data from the US and Germany, plus end-2017 economic growth data from Germany and Japan.
 
Gold priced in the single-currency Euro today held flat from last week’s finish at €1075 per ounce.

Spot Gold Up after 'Margin Calls' as Investors Await Trump's Spending Plan and Inflation Data

February 13, 2018
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SPOT GOLD bounced back on Monday morning in London as the US Dollar declined after last week’s rally while investors wait for US President Trump’s spending plan and inflation data, writes Steffen Grosshauser at BullionVault.

Gold Prices started the week by rallying from $1316 to $1319 per ounce after their second consecutive weekly decline, while the greenback weakened against its major counterparts.

Markets were looking at President Trump’s infrastructure plan and the US consumer price data due this Wednesday for signs on inflation and the likelihood of further interest rate hikes. Concerns over rising inflation and the second shutdown-mode of the US government within three weeks were blamed for the global equity plunge last week.

Asian and European stocks rose higher this morning, with the pan-European Stoxx 600, the UK’s FTSE and Germany’s Dax all rising more than 1%. But traders remained nervous following the highest volatility in equities since 2015 which wiped off $1 trillion in market capitalisation. The Cboe Volatility Index jumped three-fold during the market turbulences.

Crude oil, meanwhile, rebounded after its biggest weekly decline in two years.

President Trump is expected to unveil his long-awaited $200 billion infrastructure spending plan today – including the funds to construct a wall along the border with Mexico. Although the plan is meant to boost US economic growth, his opponents criticise that his budget proposal will drop his party’s goal to balance the budget in the next 10 years.

“The story is and will be about US monetary policy and dollar direction,” said Swiss private bank Julius Baer’s analyst Carsten Menke. “US growth is more solid, wages are rising and the worry is the Fed will be forced into more rate hikes than currently expected.”

“The uptick in [gold] prices today is not so much safe-haven buying, but more so potential short covering behaviour by market watchers,” said Singapore-listed bank OCBC’s analyst Barnabas Gan. “It’s just common sense for some portfolio managers to exhibit some short-covering behaviour especially after the sell-off we saw last week.”

“People position long gold ahead of a stock market correction, and not necessarily buying gold after a stock market correction,” said online broker Blue Line Future’s President Bill Baruch. “And because of that, after a correction, people have to rebalance their portfolios; assets come out of gold in order to meet margin calls in stocks.”

Although last week’s volatility in global stock markets did not reflect in rising gold prices, Vertical Research partner Mike Dudas on CNBC’s “Futures Now” predicts gold’s return to its status as a safe haven as “volatility returns and erratic moves become more commonplace”.

“Give it a little bit of time. We’ve just come off a tumultuous last four or five days in the equity markets and everything’s getting re-based. […] As things settle down and we get much more volatility in the marketplace, I think gold is going to find a bid,” he added, forecasting an upside target of $1355 and a year-end price of $1400.

However, spot gold could hit resistance at $1325 and $1330 per ounce before dropping back to its 8 February low at $1306, reckons Reuters technical analyst Wang Tao.

In other metals, silver slightly rose from last week’s close at $16.37 to $16.42 on Monday, whereas platinum rose 0.7% just to drop below Friday’s close at $965 and palladium traded sideways around $985 after falling to a 3-month low last week.

Hedge funds and other large speculative investors decreased their net-long position in all precious metals the day after global stock markets plunged and the Dow experiencing its biggest point drop in history.

The net-long position in Comex gold was cut down by almost 11% in the week to 6 February – the first drop in eight weeks, according to data published by the US Commodity Futures Trading Commission (CFTC) on Friday.

The non-commercial speculator positions on Comex silver also fell, bringing the overall level to the lowest in six weeks.

Holdings for the world’s largest gold-backed ETF, the SPDR Gold Trust (NYSEArca:GLD), were reduced to 820 tonnes, the lowest volume since the end of August.

Dollar and Yen Up, Gold Price 'Targets $1300' as Stockmarket 'Carnage' Worsens

February 9, 2018
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GOLD PRICES steadied against the rising Dollar on Friday but headed for the 3rd weekly loss of 2018’s six weeks so far at $1315 per ounce amid what traders called “carnage in the stock market.”
 
Gold prices in all other major currencies bar the Japanese Yen held firm for the week, rising in Sterling and Euro terms.
 
UK and Eurozone government bond prices also rallied on Friday, nudging longer-term interest rates lower.
 
US Treasury bonds fell back however, pushing 2-year yields back up to 2.14% – just below the 10-year highs reached last week – while 10-year yields touched 2.86%, some 30 basis points higher from this time last month.
 
Speculative betting on the US Fed raising its key overnight interest rate in 2018 has, in contrast, barely changed over the last month.
 
Giant gold-backed exchange-traded fund the SPDR Gold Trust (NYSEArca:GLD) saw more shareholder liquidation on Thursday, pulling the amount of bullion needed to back the value of its shares in issue down to 826.3 tonnes, some 2.7% smaller from 2 weeks ago.
 
“US funds captured 73% of global [gold ETF] inflows during January,” says a note from market-development organization the World Gold Council today, “reversing the 2017 trend” when European trusts expanded faster.
 
Chart of SPDR Gold Trust (NYSEArca:GLD) bullion holdings. Source: BullionVault via ExchangeTradedGold
 
“I am now bearish gold,” says New York strategist Russell Browne at Canada’s Scotia Bank in a technical note, “targeting the $1300 level.”
 
“On the lower side we should see some support around $1308-10,” counters a trading note from refiner and finance group MKS Pamp’s Asian desk, “[but] a move through there will see the yellow metal testing the psychological $1300 level.”
 
“After a failed attempt to confirm the multi-year [bullish] Inverted Head and Shoulder [pattern] at $1356,” says French investment bank Societe Generale’s technical team, “gold has embarked into a correction and has met a first graphical objective at $1308 representing January lows and mid-October high.
 
“The ongoing correction could extend to November high at $1300.”
 
Gold fell further on Friday against the Japanese Yen – often seen as a ‘safe haven’ currency during periods of stockmarket turmoil – to head for its sharpest 1-week drop since October 2016.
 
Losing another 2.3% on Friday, Tokyo’s Nikkei 225 stockmarket index has now fallen by more than one-tenth from this time last month. So too has Germany’s Dax index.
 
Chinese equities have lost 8.3%, France’s Cac40 is down 8.1% and the internationally-focused FTSE100 in London has lost 8.0%.
 
Gold priced in Sterling meantime rallied £20 per ounce from Thursday’s slump to an 8-week low, made after the Bank of England held UK monetary policy unchanged but forecast growing inflationary pressures and “hinted” at a faster pace of interest-rate rises ahead.
 
The UK gold price in Pounds per ounce touched £954 just before lunchtime Friday in London.

Gold Prices Hit Multi-Week Lows as UK 'Hints' at Rate Rise, US Risks Syria Stand-Off with Turkey

February 9, 2018
Latest News
GOLD PRICES bounced $10 per ounce from new 5-week lows against a rising US Dollar in London on Thursday, rallying to $1316 as Western stock markets also fell hard once again.
 
Commodities held flat, but major government bond prices dropped, driving longer-term interest rates higher.
 
Benchmark UK Gilt yields neared the highest since March 2016 – back before the shock Brexit referendum result on quitting the European Union – after the Bank of England forecast rising inflationary pressures over the next 2-3 years.
 
Widely reported as “hinting” at rate hikes to come, the Bank however voted unanimously to keep UK interest rates on hold, with no change to its current £445 billion stock of QE bond purchases.
 
A rally in Sterling nonetheless helped push gold priced in the British Pound down to 8-week lows before it rallied off £935 per ounce.
 
Chart of UK gold price in British Pounds per ounce. Source: BullionVault
 
Ten-year US Treasury yields neared fresh 4-year highs at 2.87%, but short-term interest rates held steady as the US Congress prepared to vote on approving a two-year budget deal, set to expand military as well as domestic federal spending.
 
“This is a bipartisan bill. We are going to deliver our share of support,” said Republican House Speaker Paul Ryan, aiming to avert a government shutdown as the much-deferred deadline on the US debt ceiling approached yet again,
 
US troops supporting Kurdish forces in Syria meantime risk coming into conflict with fellow Nato-member troops from neighboring Turkey around the town of Manbij, the New York Times reports.
 
Announcing a second summit regarding Syria’s future with the leaders of Russia and Iran, Turkey’s President Recep Tayyip Erdoğan today said his army’s ‘Operation Olive Branch’ aims to help “our refugee brothers and sisters to return to their land, to their homes.
 
“We are not in the position to keep 3.5 million people here forever.”
 
Turkish officials said Wednesday that Ankara will amend its anti-terrorist laws to fit better with European Union expectations, addressing worries around media and academic freedoms so that negotiations can progress on entering the Schengen passport-free area.
 
But the head of Turkey’s union of lawyers says he was “amazed” to hear Erdogan demand it remove the word “Turkish” from its name, accusing it – together with the Turkish Medical Association – of “siding with terrorists” in comments over Ankara’s strikes against the YPG Kurdish separatists in Syria’s Afrin region.
 
Gold priced in the single currency Euro today held steady, on track for its first weekly gain in five.
 
Amongst gold investment products, the giant SPDR Gold Trust (NYSEArca:GLD) shrank again on Wednesday, losing 2.5% of its size from late January, when Dollar gold prices began a retreat from 18-month highs.

Stock Market Bounce 'Good for Gold Prices' as Yields Ease But Dollar Weighs

February 7, 2018
Latest News
GOLD PRICES rallied from yesterday’s near 4-week low against the Dollar on Wednesday but held below $1330 per ounce as world stock markets failed to follow Wall Street’s sharp bounce from the last week’s 6% plunge.
 
Both the Euro and British Pound continued their retreat against the US currency on the FX market, helping gold prices for European investors hold a small gain for the week so far.
 
Volatility meantime continued to hit major government bond markets, with so-called ‘peripheral’ Eurozone yields on Italian, Spanish and Portuguese debt easing lower while long-term German and Dutch interest rates rose.
 
US Treasury bond prices ticked higher ahead of speeches scheduled from several Federal Reserve policymakers, edging yields lower again from last week’s spike to multi-year highs.
 
Typically moving inverse to each other, 10-year yields and gold priced in Dollars last week touched their strongest positive correlation since May 2012.
 
Chart of 10-year US Treasury yields vs Dollar gold prices. Source: St.Louis Fed
 
Tokyo’s stock market rallied just 0.4% on Wednesday and China closed sharply lower again. 
 
Germany’s Dax bounced 0.4% from its 5-month low, while London’s FTSE100 index of mainly global businesses added 0.7% from its plunge to 9-month lows.
 
“While this drop in equities would normally be supportive of gold as a risk hedge,” says the latest weekly analysis from strategist Jonathan Butler at Japanese conglomerate Mitsubishi, “the short term headwinds of the stronger Dollar and rising yields pushed bullion lower. 
 
But this “correction” in equity markets after a 9-year bull run “may turn out to be short lived,” Butler goes on, because “the economic fundamentals remain strong.
 
“The full benefits of US tax reform have yet to be felt…[and so] the risk of inflation re-emerging appears to be greater than that of a recession. [That] paints a constructive picture for gold as an inflation hedge, and also gives a broadly positive outlook for the industrial-facing white precious metals.”
 
Silver edged higher against the Dollar on Wednesday, trimming the Gold/Silver Ratio of the dearer precious metal’s relative price down to 79.5 from Tuesday’s spike towards 2-year highs above 80.
 
Platinum prices meantime held lower for this week so far at $986 per ounce, trading some 4.1% beneath late-January’s 11-month high.
 
The CEOs of platinum’s major mining companies see output “flat at best” in 2018 reports Bloomberg today, quoting comments from No.1 miner Anglo American Platinum’s Chris Griffith and other bosses meeting in Cape Town for the annual Mining Indaba conference.
 
Global gold mine production meantime rose to a fresh record high in 2017, expanding for 9 years running according to new data compiled for market-development organization the World Gold Council show.

Gold Prices Steady Ex-Dollar Amid 'Correction, Not Crash' in World Stocks, 2017 Coin and Bar Demand Weakest Since '09

February 7, 2018
Latest News
GOLD PRICES fell $10 per ounce against a resurgent US Dollar on Tuesday in London, erasing this week’s earlier gain as world stock market sank for a third session running.
 
Solid gold trading in Shanghai – where the Chinese stock market today sank over 3% – saw global quotes rise to $1345, with Tuesday’s benchmark price in the No.1 consumer nation edging higher in Yuan terms.
 
Barely a week before the key Lunar New Year holiday gifting and shopping season, that held Shanghai gold at an $8 premium to London prices, just below the typical incentive for new imports.
 
Gold prices held firm in other currencies except the Japanese Yen, which also rose on the FX market as the Dollar jumped to 2-week highs versus the Euro and Sterling.
 
The UK gold price in Pounds per ounce held near 3-week highs above £965, while gold priced in Canadian Dollars spiked to its highest since June 2017.
 
With New York’s Dow Jones index recording its heaviest-ever points drop on Monday, the global stockmarket plunge had already pulled the MSCI World Index down 6.2% from its new all-time peak of late January.
 
Tokyo today lost over 4.4% as Hong Kong lost 5.1%, while European equities traded another 2.7% lower by early afternoon.
 
“[The slump has] encouraged some small safe haven buying in gold and the Yen,” says a trading note from David Govett at brokers Marex Spectron in London.
 
But for stocks, “I think this is a healthy, albeit rather vicious correction,” he adds.
 
“[So] I don’t think gold will go a lot higher and if the stock market does recover, the Dollar may well do the same, at which point gold comes lower again.”
 
“For [equity] investors with a long time horizon and robust portfolios,” agrees Alex Scott, chief strategist at UK investment managers 7IM, “periods such as this offer opportunity.
 
“It would be extremely unusual to see a sustained or deep equity bear market against such a positive economic background.”
 
With the US stock market ending January with its longest run of unbroken monthly gains since 1958, new data today said US gold investment demand sank to a 10-year low in 2017.
 
Globally, say the figures from mining-backed market development organization the World Gold Council, private-investor demand for gold coins and bars fell to its weakest since the financial-crisis recession of 2009.
 
Chart of global gold investment demand, 2003-2017. Source: BullionVault via World Gold Council's quarterly Gold Demand Trends
 
“The [gold investment] market is not in bad shape…given the backdrop of monetary policy tightening and strong equity markets in 2017,” says the WGC’s head of market intelligence Alistair Hewitt.
 
“Institutional investors, especially in Europe, continued to add gold to their portfolios as a hedge against frothy asset prices and geopolitical uncertainty.”
 
So-called crypto-currency and stellar 2017 asset Bitcoin today rallied almost 17% after sinking to new 3-month lows beneath $6000, down some 70% from its peak of mid-December.
 
The US Congress today hears testimony from financial regulators on how they’d like to treat so-called “digital assets” such as Bitcoin, Ethereum (down 40% after tripling in December) and Ripple (halving in the last week).
 
Commodity prices meantime fell further on Tuesday but major government bond prices rallied once more after New Year 2018’s sharp sell-off.
 
As that pulled down longer-term interest rates, betting that the US Federal Reserve – now under new chair Jerome Powell – will raise its overnight rate at next month’s policy meeting fell, retreating from a 76.1% likelihood to just 69.0% on Tuesday according to data from the CME futures exchange.

Powell's 1st Day as Fed Chair Sees Gold Price Bounce $5, Stocks Fall 5th Day in 6

February 6, 2018
Latest News
GOLD PRICES rallied $5 per ounce from Friday’s $20 drop in London trade on Monday, rising to $1335 against a stronger US Dollar as a sell-off hit world stock markets for the 5th time in 6 trading days.
 
With former Fed governor Jerome Powell today replacing Janet Yellen as chair of the world’s single most influential central bank, betting that the Federal Reserve will raise Dollar interest rates more quickly in 2018 retreated from last week’s jump, when new ISM Prices Paid data said factories face the highest input costs in nearly 7 years and national average wages have jumped at the fastest pace since 2009.
 
Commodity prices fell again Monday, but European government bond prices rebounded, edging longer-term interest rates lower from last week’s multi-year highs.
 
Benchmark US Treasury bond yields opened Monday at 2.85%, the highest weekly start since January 2014.
 
Ahead of last week’s drop in gold prices, bullish betting by hedge funds and other money managers grew for the 7th week running, according to data compiled by US regulator the CFTC.
 
Reaching its largest size since September, the net long position amongst these professional Comex gold speculators stood 75% above its long-term average.
 
So-called “non-reportable” traders, in contrast, cut their bullish bets while raising their bearish bets on gold prices to the highest level in almost 5 months.
 
That held the net bullish position amongst these smaller, typically private-individual traders at barely half its long-term average.
Chart of Managed Money and Non-Reportables' speculative betting on Comex gold futures and options. Source: BullionVault via CFTC
 
Despite Chinese New Year falling at the end of next week, wholesale Shanghai gold prices today extended Friday’s drop in global Dollar quotes, touching new 2018 lows at ¥271 per gram and trimming the premium for bullion landed in the world’s No.1 consumer nation below $7.40 per ounce.
 
This close to Chinese New Year 2017, that incentive for new imports was twice as large. 
 
“Early session weakness around the Chinese open saw bullion briefly test underneath $1330,” says today’s Asian trading note from Swiss refiners MKS Pamp, “while afternoon pricing saw a modest pick-up in interest, however still hold rangebound.”
 
Indian gold prices meantime traded down to a 50 cents discount to global quotes, allowing for the No.2 consumer nation’s 10% import duty, after holding a small $1 premium last week – the longest stretch of premiums so far in 2018 according to data from futures contract exchange NCDEX.
 
Discounts in the key terminal of Ahmedabad last month ran as deep as $4 per ounce because “the industry was expecting [a] duty cut in the budget,” Reuters today quotes senior analyst Sudheesh Nambiath at specialists GFMS, “[so] people were not willing to build inventory.”
 
Legal gold imports into India – which has zero domestic mine output – fell in January to the lowest in 17 months, Nambiath estimates.
 
Last Thursday’s new government budget made no changes to duty or tax rates on gold. But its pro-growth policies should help boost rural incomes to buoy 2018 demand the Economic Times says, quoting various dealers.
 
“The government will also establish a consumer friendly and trade efficient system of regulated gold exchanges in the country,” declared finance minister Arun Jaitley, confirming the shape of New Delhi’s proposed gold policy in his Union Budget for 2018-19.
 
Platinum prices meantime rebounded with gold on Monday, holding below $1000 per ounce after the sharpest weekly drop since early December followed the 8.0% gains made in January.
 
Silver also rallied but recovered less of last week’s plunge after whipping over $1 lower from a 4-month high to a 6-week low inside 6 trading days.
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