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Gold Trading 'Explodes' on Negative Rates, Stockmarket Drop, Brexit Risks But Asian Demand 'Absent'

February 19, 2016

GOLD TRADING in London saw prices rally but fail to reach yesterday’s 1-week high at $1240 per ounce against a rising US Dollar on Friday, while Western stock markets fell yet again with commodities as the European Union failed to find common ground on its migrant crisis or the looming Brexit referendum in the UK.

Continuing talks with EU counterparts in Brussels, UK prime minister David Cameron said there was “progress” but “still no deal” he can put the British people in a referendum on Brexit from the economic union, perhaps as soon as this June.

Heading for its first weekly drop in five, the gold price slipped back to $1223 – down 1.2% from last Friday’s finish – as New York trading began.

Gold trading has seen “an explosion of activity” in 2016 thanks to “collapsing real [interest] rates, the spread of central-bank negative deposit rates, and financial market instability,” says Chinese-owned investment and bullion bank ICBC Standard Bank’s Tom Kendall.

Shanghai’s stock market slipped Friday, but closed the first trading week of the new Year of the Monkey some 3.5% higher.

Crude oil however reversed another 2% of this week’s sharp bounce, trading back down towards $30 per barrel of WTI, while European stock markets fell over 0.5%, with Germany’s Dax index dropping for the 22nd out of 35 sessions in 2016 to date.

Wholesale gold trading prices against the Euro jumped overnight to 10-month highs at €1117 per ounce.

Gold priced in British Pounds also rose, heading for its 7th consecutive weekly gain above £860 per ounce.

“The EU’s clearly difficult negotiations with Great Britain over concessions to the UK are no doubt playing a role,” says the commodities team at German financial group Commerzbank.

“If British Prime Minister Cameron’s demands are not met, this could lead in a worst-case scenario to Great Britain leaving the EU (Brexit).”

Looking at the policy of negative interest rates now applied to banking reserves held at the ECB, Bank of Japan and Swedish Riksbank, “Leave a million dollars with a bank, and in a year, you get only something like $990,000 back,” Bloomberg News today quotes Swiss money manager and Asia-based finance author Marc Faber, publisher of the Gloom, Boom & Doom Report.

“I would rather want to own some solid currency, in other words gold.”

“Even if gold’s rally proves only a temporary phenomenon,” writes US financial group BNY Mellon’s chief strategist Simon Derrick, “it still speaks a great deal about how fragile investor faith in central banks has become.”

The giant SPDR Gold Trust (NYSEArca:GLD) grew again on Thursday, taking the inflow of bullion needed to back its shares so far this year to 71.3 tonnes – the heaviest inflow over 32 trading days since September 2012.

Chart of SPDR Gold Trust (NYSEArca:GLD) backing in tonnes

That took the GLD’s total holdings up to 713 tonnes, a 6-year low when first reached at the end of 2014 but now recovering some 13% from last December’s new 7-year low.

“Asian physical demand [in contrast] has been notable by its absence,” Kendall at ICBC Standard Bank goes on, and so “$1225 feels rich right now.

Call skew – meaning the higher prices being paid for bullish than bearish derivatives bets – “looks excessive,” the note says, “given the weakness of physical demand.

“The floor price for gold has probably risen and the bear is back in hibernation but it is way too soon to be talking about a new bull market.”

Gold Investing 'Now Loaded' as 'Bears Turn Bulls', FTSE Slips Amid Brexit Fears, Miners Extend Surge

February 18, 2016

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GOLD INVESTING prices held above $1200 per ounce Thursday morning as European stockmarket rose but London share prices fell amid the start of UK negotiations with the EU to avoid ‘Brexit’, and the US Dollar rose to 2-week highs against the single Euro currency.

UK prime minister David Cameron was due to meet EU head Jean-Claude Juncker in Brussels to discuss amends to Britain’s terms of membership.

Senior figures in the ruling Conservative government fear “turmoil” in Europe, says the Financial Times, if UK voters do choose to exit in the referendum promised by end-2017, and now likely this June.

Gold priced in Pounds slipped Thursday below £840 per ounce, cutting investing gains in Sterling terms to 16.7% so far in 2016.

Yuan gold prices meantime held steady in Shanghai, and moved to a small premium above global Dollar-price quotes but on the lowest trading volume since China returned from its week-long New Year’s holidays on Monday.

“There is [now] a sense of fragility,” says one bullion bank’s sales desk, “and gold is being kept afloat only by ETF demand, which continues pouring in – albeit at a slower pace.

“It seems like investors are now loaded with gold.”

Investor demand for the SPDR Gold Trust (NYSEArca:GLD) held steady on Wednesday, with the quantity of gold bullion backing the ETF unchanged at 710 tonnes – a 7-month high, but still almost half the amount needed at the GLD’s peak of end-2012.

Yesterday’s 1-week low in the silver price, in contrast, saw investor demand for the iShares Silver Trust (NYSEArca:SLV) retreat for the first time since last Wednesday, shrinking the quantity of bullion needed to back the ETF’s shares in issue by 0.4% to 9,672 tonnes – a 3.5-year low when first reached late last month.

Silver prices moved in a tight 10-cent range in London on Thursday, holding more than 4% below last week’s sudden 4-month high at $15.95 per ounce.

“Safe-haven demand appears to be where people are focused,” Bloomberg quotes Jacob Klein, CEO of Australian gold miner Evolution (ASX:CAH) – which today reported record half-year output up 71% – “and that [signals] a loss of faith in central banks being able to manage through this period.”

“[Gold investing is] certainly getting more attention from people who have generally been bears over the past few years.”

Negative interest rates are “a dangerous experiment” warn analysts at US investment bank Morgan Stanley, pointing to a likely 5-10% erosion of Eurozone banking sector profits as a result of the sub-zero rates now being imposed on commercial deposits at the European Central Bank.

“Having been long-standing gold bears we have now turned bullish,” said Dutch bank ABN Amro’s precious and FX analyst Georgette Boele in a note Wednesday.

“The change in our macro, central banks and FX views [mean] we expect gold prices to rally to $1300 per ounce.”

Now averaging $1130 per ounce in 2016 to date, the gold price is currently 2.5% ahead of the average 2016 forecast from professional analysts competing in this year’s survey by the London Bullion Market Association.

The 2016 peak price forecast by 24 of those 31 analysts has already been beaten by last Thursday’s sudden 12-month high at $1261.

Evolution’s share price today slipped 4.5% following its July-December 2015 results, but held more than 125% higher from this time last year.

Australia’s gold mining sector as a whole edged higher, pushing its rally from late 2014’s lows to almost 95%.

Also helped by falling costs thanks to local currency weakness against the US Dollar, South Africa’s JSE Gold Index of mining stocks has now risen 150% from last August’s 14-year bottom.

Gold Bullion Flows 'Dead' Ahead of India Budget, Price Rallies from 2nd Dip Below $1200

February 18, 2016

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GOLD BULLION dipped below $1200 per ounce for the second day running in Asian trade Wednesday, with dealers reporting weak demand from major consumer nation India ahead of this month’s government Budget, before rallying to $1207 by lunchtime in London.

Western stock markets jumped 2%, crude oil rallied another 3%, and the US Dollar touched near-2 week highs on the currency market.

With China’s busiest single period of household gold demand now finished with last week’s Lunar New Year holidays, bullion today rallied 1.0% on the Shanghai Gold Exchange as the Chinese Yuan retreated further from Monday’s surge – its fastest 1-day gain since 2005 according to Bloomberg data, spurred by People’s Bank of China chief Zhou Xiaochuan blaming “foreign speculators [for] volatility” in the currency.

A survey of 5,000 adults in the UK by Lloyds Bank’s private banking division today said pessimism on share investing was the worst in 3 years last week, while gold became the second “favorite” investment after real estate.

Tuesday saw the number of shares outstanding in the giant SPDR Gold Trust (NYSEArca:GLD) close unchanged from before the President’s Day holiday weekend.

Hedge-fund billionaire John Paulson was one of 6 out of the 15 largest GLD shareholders to cut his clients’ position in the ETF during the last 3 months of 2015, when gold prices fell to new 6-year lows.

Yesterday’s biggest single change in Comex gold options betting for March was a rise in the number of $1180 puts, according to the Reuters news and data agency, giving speculators the change to profit if prices fall below that level before the contracts expire a week today.

Bearish puts, however, still accounted for just 15% of the 5 most widely held March gold options, and just 21% of the April contract’s top five bets.

“Physical flows are dead quiet,” said one wholesale bullion trading desk this morning.

“Forwards have barely moved on the price jump. No-one’s shipping to India in case the government cuts import duty in the Budget.”

Forward rates are the incentive offered by lenders to would-be borrowers of gold bullion in London’s wholesale market, falling or rising when immediate supply becomes tighter or easier.

India’s finance minister Arun Jaitley will present the BJP government’s 2016 Budget on Monday 29 February.

Amid a deluge of newspaper, business and analyst opinions calling for special treatment or new programs to boost different parts of the economy, jewelry trade associations the IBJA and GJF have both formally asked for a cut to gold import duty rates.

Currently at 10%, that rate was first imposed by the then-Congress Party government in 2013 to try and stem record-high bullion inflows when precious metal prices crashed, spurring huge consumer demand and pushing the country’s balance of payments deficit with the rest of the world to a record 4.8% of GDP.

India’s retail gold prices – typically at a premium to international wholesale quotes – sank last week to a discount worth $25 per ounce, the Reuters news-wire says, with some dealers reporting “no buyers” on a $40 discount to Thursday’s sudden 12-month high of $1260 for gold priced in Dollars.

Illegal inflows of gold to India – the world’s heaviest consumer nation – continue meantime, with “police conducting raids on only 10% of [gold] smugglers and 90 out of every 100 smugglers…walking out from airports and railway stations without any check,” The Hindu newspaper today quotes Commissioner S.Khader Rahman of India’s Customs Preventive unit.

Unlike the GJF, the IBJA’s executive team has said it backs the Finance Ministry’s move to make personal tax account declarations mandatory on gold and jewelry purchases below 200,000 Rupees, equal to just less than US$3,000 – and down from the previous PAN gold declaration level of Rs 500,000, equal to some US$7,500.

Gold Bullion Rallies from $1190 October High as Goldman Channels FDR, Inflation Slides

February 17, 2016

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GOLD BULLION rallied 2.0% from an overnight drop to $1190 per ounce in London on Tuesday, rising back to $1215 as European stock markets lost earlier gains.

Commodity markets stalled after Monday’s 4.7% bounce on the S&P GSCI index, while the Euro rallied from yesterday’s sudden 1-week low to the Dollar.

Shanghai’s main gold contract closed Tuesday level with London bullion quotes at $1200 per ounce, as Yuan prices retreated another 0.9% .

“Fears around China, oil and negative interest rates have likely been overstated in the gold price and other financial markets,” says US investment bank – and London bullion market maker – Goldman Sachs.

Despite what other analysts call gold’s “relentless rally” in 2016 so far, Goldman analysts Jeffrey Currie and Max Layton still target a drop to $1000 within 12 months for gold bullion, telling clients on Monday that they have “nothing to fear but fear itself” – a phrase used in 1933 by Depression-era US president F.D.Roosevelt shortly before he banned the private ownership of bullion, and then raised the official Dollar price of gold, in a bid to boost inflation and curb America’s worsening debt-deflation.

“It’s time to sell the fear barometer,” say the Goldman Sachs analysts, urging clients to sell gold short using derivatives contracts, because “Systemic risks [to financial stability] stemming from the collapse in oil and commodity prices are extremely small.”

Betting on a rise in US inflation expectations was one of five “top trades for 2016” which Goldmans had already advised clients to close at a loss before the end of last week, alongside betting on a rally in the US Dollar, outperformance by US banking stocks, and a rise in Italian bond yields.

That left only one “top 2016 trade” still in place, betting on stocks in non-commodity exporting nations against emerging-market banks.

Consumer-price inflation in the UK slowed to 0.3% annually last month, new data showed Tuesday.

Consensus forecasts for US consumer-price data, due Thursday, expect inflation to show a surge to 1.3% per year from December’s annual rate of 0.7%.

That would mark the fastest percentage point jump in 1 month since March 2011.

Technical analysis from French investment bank and London bullion market maker Societe Generale says the gold price was “clearly overstretched” at last week’s high of $1263, “suggesting possibility of a near-term retracement towards $1212/1200…likely to be an important support near term.”

“We would expect [the gold] price to ideally stabilise circa $1200/1192,” counters Karen Jones’ latest weekly technical chart-book for German financial services group Commerzbank, pointing to gold’s October high.

“The weekly close above the 2014-2016 downtrend completes a large bullish falling wedge pattern…[with a] key break up point at $1200.

“We are currently viewing this sell off as a ‘return to point of break out’,” Jones concludes, again targeting $1450 longer term.

China's New Year Return See Gold Prices Face 1st Two-Day Drop in a Month, Shanghai Goes to Discount

February 16, 2016

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GOLD PRICES fell for a second session on Monday morning in London, dropping to $1210 per ounce after Chinese markets reopened following the week-long Lunar New Year holiday and European equities rebounded sharply, writes Steffen Grosshauser at BullionVault.

Coming after the weekly biggest gain in more than seven years, gold prices were set for their first back-to-back loss in a month on Monday.

Shanghai traders today returned to find gold priced in Yuan trading 6.4% higher from before China’s New Year holiday.

Heavy trading volumes then saw Shanghai’s main gold contract drop 2.3%, with the premium above comparable London quotes – typically around $2.50 per ounce – turning into a discount of 70 cents.

“Gold is lower because of the good bounce in equities and the Chinese selling,” the Reuters news-wire quotes a Sydney-based trader.

“There is some profit-taking around but volumes [outside China] haven’t been huge.”

“If financial markets continue to stabilize, gold is likely to correct further,” analysts at global financial services provider and London bullion bank HSBC add.

“The last time gold prices rose more than 10% in a 10-day stretch was during the rally when gold touched all-time highs above $1900,” notes Swiss refiner MKS PAMP’s Asian trading desk in its market update.

Latest data, released Friday, showed money managers trading Comex gold futures and options doubling their “net bullish” position as a group in the week-ending last Tuesday.

Equivalent to 226 tonnes of bullion, however, that measure of bullish bets minus bearish bets remained below two-thirds of the last 10 years’ average.

Chart of Managed Money net long position in Comex gold futures and options

Silver prices tracked gold on Monday, halving last week’s 5% gain to drop back to $15.30 per ounce. Silver also had 4 consecutive up-weeks and closed last week higher at $15.75 per ounce.

“Support now lies at $15.00,” said Friday’s technical analysis from bullion bank ScotiaMocatta.

“We would like a weekly close above $16.35 before feeling confident about calling December’s $13.65 as the end of the bear move.

Other precious metals meantime rallied as gold and silver fell, with platinum up $6 to $949 per ounce as crude oil steadied above $30 per barrel following Friday’s surge.

European stock markets added almost 3% on average, while the single Euro currency extended its retreat from last week’s new 4-month highs against the Dollar to nearly 3 cents at $1.1177.

“I don’t think we’re in the middle of a sustained [gold] bull market,” says David Govett, head of precious metals at London-based broker Marex Spectron, speaking to the Financial Times.

“The higher it goes the more it has to run out of steam at some point. It only takes a couple of positive economic figures to switch that mentality around and everyone jumps out of the lifeboat.”

China's Returns See Gold Prices Face 1st Two-Day Drop in a Month, Shanghai Goes to Discount

February 15, 2016