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Gold/Silver Ratio Jumps Near 6-Year High as 'Fed Aftermath Begins Early', Commodities Sink Again

December 15, 2015

SILVER PRICES hit new 6-year lows in London trade Monday, dropping to $13.65 per ounce and falling near 2009 lows against steadier gold prices as industrial commodities sank and Western stock markets fell again ahead of this week’s decision on Dollar interest rates from the US Federal Reserve.

With gold bullion trading above $1070 per ounce mid-afternoon, the Gold/Silver Ratio of relative prices rose above 77.7 – a multi-decade high when seen during the oil price crash of the mid-1980s.

“The aftermath [of the Fed’s rate hike] has already begun,” says a credit markets note from French investment and bullion bank Natixis.

Following the closure last week of a $795 million ‘junk bond’ mutual fund, trading volumes in the largest exchange-traded fund product holding ‘sub-investment grade’ bonds blew out Friday to $4.3 billion – three times the heaviest 1-day volume in any corporate bond ETF, according to Bloomberg.

One-year US Treasury bond yields today hit their highest level since March 2009 at 0.69%, while broad commodity indexes fell another 1% on top of Friday’s 2% slump.

Nymex natural gas contracts lost almost 6% for the day. US crude oil sank near an 11-year low beneath $35 per barrel.

“The gold-silver ratio made huge strides higher” on Friday, said a technical analysis from bullion bank Scotia Mocatta late Friday, setting its next target “at the September high of 77.74 followed by the 2015 and multi-year high of 80.”

Based on the wholesale market’s daily benchmark London pricing, gold today hit its highest valuation over silver since start-October’s near 6-year highs above 79.

The Gold/Silver Ratio has averaged 54.2 since the collapse of fixed gold pricing in 1968.

The ratio peaked at 101 ounces of silver per 1 ounce of gold in February 1991, and hit its lowest level in more than 3 decades – with silver more highly valued against gold – at 31.5 in April 2011.

“$13.80 remains a key [level]” for silver prices, said a technical chart analysis from French investment and bullion bank Societe Generale lastweek.

“A sustained move below will mean a deeper downtrend.”

For gold, in contrast, “Short term a rebound is taking shape and a test of $1100-1105…is likely.”

Data released by US regulator the CFTC after Friday’s market close showed the number of bullish speculators in US gold futures and options jumped last week to exceed the number of bearish traders by the widest margin in a month.

But overall, the ‘spec net long’ betting (of bullish minus bearish contracts) remained near the lowest since end-2002, down below 30% of the last 20 years’ average.

Silver traders, in contrast, last week held a net spec long equal to 78% of the last 20 years’ average.

Investors in silver-backed ETF products also grew their exposure, raising the amount of stock issued by the giant iShares Silver Trust (NYSEArca:SLV) to its highest level since the start of September, and needing some 10,062 tonnes of physical bullion as backing.

The biggest gold ETF product on the other hand lost another 4 tonnes last week, ending Friday with 634 tonnes needed to back shares in the SPDR Gold Trust (NYSEArca:GLD) – the world’s largest exchange-traded fund by value at its summer 2011 peak.

'No Deflationary Spiral' Says Bundesbank as Commodities Sink Stocks, Gold Rallies 1.5% But Silver Hits New 6-Year Low

December 12, 2015

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GOLD PRICES jumped 1.5% in barely an hour in afternoon London trade Friday but silver fell to fresh 6-year lows beneath $13.80 per ounce as world stock markets sank again together with commodity prices.

Crude oil on both sides of the Atlantic lost over 2% to new 7-year lows as US natural gas sank 2.8% and base metals pulled London’s mining-heavy FTSE100 share index down 2.5% at one point, with Anglo American (LON:AAL) down 7.7% and BHP Billiton (LON:BHP) down 5.7%.

South African-based insurance giant Old Mutual (LON:OML) led the plunge however, dropping over 11% at one point as the Rand hit new all-time lows following the surprise sacking by President Zuma of respected finance minister Nene.

The Euro spiked near its highest price against the Dollar in more than a month on the FX market, briefly driving the gold price for Eurozone investors down to a new 2015 low beneath €970 per ounce.

US Treasury bond prices meantime jumped, pushing 10-year yields down towards their lowest levels so far this month at 2.17% and unchanged from this time last year, before the Federal Reserve began pointing to next week’s policy meeting as a likely start to “normalizing” interest rates from their near-zero level of the last 7 years.

“We are nowhere near the deflationary spiral that is so often alluded to,” said German Bundesbank president Jens Weidmann in an interview Thursday, adding in a speech today that the European Central Bank’s €1.5 trillion QE bond-buying scheme is blurring the lines between fiscal and monetary policy.

“The effect of lower energy prices on the inflation rate will disappear in time.”

Credit default swaps insuring debt-holders in Devon Energy (NYSE:DVN) – the largest independent US oil and gas producer with a market cap of $14 billion but now down 72% since 2010 and halving on the New York Stock Exchange since May – have jumped more than 40% this week and risen 158% since the start of 2015, says a note from ratings agency Fitch.

That prices Devon’s bonds “below investment grade territory…likely driven [by its] recently announced acquisitions making market participants nervous as they are not partial to deals that add debt,” says Fitch.

Investment fund Third Avenue Focused Credit (TFCVX) yesterday became the largest US mutual fund to fail since the global financial crisis, Reuters reports, locking investors in for “up to a year or more” as it tries to liquidate $789 million of energy bonds after they fell 23% in value through 2015.

“2016 broadly speaking will be probably the year of commodity prices bottoming out,” says Xavier Denis, global strategist at the private banking division of French investment and bullion bank Societe Generale.

“But not all commodity prices are going to experience probably the same bounce back…When you look at iron ore, when you look at steel, when you look at aluminium, you still see some over capacity especially in China.”

“Silver’s fundamentals should tighten in 2016,” reckons the latest Metal Matters monthly from bullion bank Scotia Mocatta this week, “as production cuts and mine closures at lead-zinc mines take effect.”

Silver priced in Dollars hits new 6-year low

Over in gold, the share price of major South African miners leapt again early Friday as the Rand fell yet again.

“The weakening of many producers currencies relative to the Dollar, alongside lower oil prices, is helping reduce mine site input costs such as power, fuel and labour,” says the latest Precious Metals Weekly from London-HQ’ed analysts Metals Focus.

Those lower costs mean that what Metals Focus call “the race to escape lower prices” will likely see new record gold mining output in 2015, according to forecasts across the industry.

“A higher Dollar will continue to put pressure on all commodities medium term,” says a note from analysts at German investment bank and former bullion benchmark member Deutsche.

But looking at trader positioning in US derivatives contracts, and warning of a “short-covering” rally, the bank adds that “copper shorts are already at an extreme; oil and gold longs are at new lows for the cycle but elevated compared to prior down-cycles when they went very short.”

New data from China meantime said Friday that bank lending jumped 38% in November on lower Yuan interest rates, while the broad M2 measure of money supply rose faster than 13% per year.

The Yuan today hit a new 4.5-year low to the Dollar on the FX market, holding bullion contract prices on the Shanghai Gold Exchange unchanged on the day.

Gold Price 'Technically Challenged' as Dollar Hits Euro, Opec Hits Oil, Shanghai Delays Benchmark Fix

December 11, 2015

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GOLD PRICES slipped back again in London on Thursday, halving last week’s 2.6% gain to trade just above $1071 per ounce as stock markets from China to Europe fell once more but US equities opened higher.

Crude oil slipped again to fresh 7-year lows following news that members nations in the Opec oil cartel pumped a 6-year record quantity last month, while the US Dollar pushed the Euro back down from new 1-month highs above $1.10 ahead of next week’s Federal Reserve interest-rate decision, now given 85% odds of a rise from zero by betting in the futures market.

The Euro’s retreat saw the gold price for French, German, Italian and other single-currency investors rally0.5% from near 2015 lows beneath €973 per ounce.

Gold priced in British Pounds meantime erased most of last week’s 2.1% jump as Sterling quickly regained a half-cent drop from new 3-week highs on the FX market, even as the Bank of England kept its key interest rate at 0.5% for the 82nd month in a row on an 8-to-1 vote.

“Decent physical demand appeared at [last week’s new 6-year low of] $1050,” says one bullion bank sales desk in a note, but “technically, the chart is challenging.”

On the contrary, claims another bullion bank – Scotia Mocatta – in its daily technical analysis of gold price charts, “the metal continues to consolidate above short-term support of $1066 and above cycle low of $1051.

“The formation is shaping into a [bullish] ‘Inverted Head and Shoulders’. The neckline comes in at $1088 but we don’t see larger buying until we break out of the 1-month top of $1093.”

Demand to buy gold bullion at the LBMA Gold Price auction – the formally-regulated benchmark used to price deals and inventory worldwide – was tepid at 1.7 tonnes this morning in London.

Barely 60% of the Q3 average, that equaled less than 45% of Tuesday afternoon’s demand, when the benchmark – formerly known as the “London Gold Fix” for over a century – found a clearing price 10 cents higher at $1072.10 per ounce.

China’s long-rumored gold-price benchmark in Yuan will be delayed until April, Reuters reported today, saying that a proposed “fixing” at the Shanghai Gold Exchange – the only legal route for bullion to enter private-sector circulation in China – will then “start with Chinese and some foreign banks. Jewellers, miners and banks could use this price as a benchmark.”

With China now the world’s No.1 gold mining nation since 2007, and vying with India as the No.1 consumer market since 2012, a Yuan price benchmark had been rumored around this autumn’s appointment as SGE chairman of Jiao Jinpu, formerly director-general of the Financial Consumer Protection Department at Beijing’s central bank and financial regulator, the People’s Bank of China.

Turnover in the Shanghai Gold Exchange’s main contract meantime rebounded Thursday from yesterday’s 1-week low, reaching above 29 tonnes to beat December’s daily average so far but lagging Monday’s 4-month record by more than 50%.

Shanghai premiums above comparable London quotes slipped below $3 per ounce, reducing the incentive to import metal.

London vaults saw a net inflows of gold bullion for the first time since June in October, new trade data suggested Thursday, with UK gold imports outweighing exports by around 3 tonnes – worth some £81 million ($125m) – as gold prices rallied at their fastest pace since January, gaining over 3% for the month.

Gold Price Escapes New Commodities Plunge as China's Imports Fall, Anglo American Sacks 2/3rds of Workforce

December 9, 2015

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GOLD PRICES escaped the worst of a fresh slump to new multi-year lows in other commodities Tuesday, whipping between $1070 and $1080 per ounce as weak Chinese trade data and the cancellation of major miner Anglo American’s dividend to shareholders saw world stock markets drop up to 2.5%.

With iron ore prices falling below $40 per tonnes for the first time since 2007, Anglo American (LON:AAL) also said it’s cutting two-thirds of its 135,000 global headcount.

China’s balance of trade surplus meantime showed a rise in Yuan terms for November as imports fell faster than exports.

European crude oil’s benchmark Brent contract hit 7-year lows beneath $40 per barrel.

Silver failed to rally with gold prices from an earlier low, retreating to $14.10 per ounce – the level from where it jumped to near 4-week highs above $14.60 starting Friday.

“Large divergence” in the gold price’s relative strength index of recent daily moves “points to a loss of downside momentum,” says the latest Bullion Technicals Weekly from German bank Commerzbank’s analyst Karen Jones.

“[That] implies a corrective rebound near term.”

Looking gold’s drop and rally from fresh 6-year lows last week at $1046 per ounce, “We think that some professionals have been caught short,” adds one Asian trading desk, “and would expect there to be a bit more topside pain to come.

“A test of $1100…will be critical going into the end of the year.”

Last Friday’s jump was “a very large short covering rally,” agrees David Govett at brokerage Marex Spectron in London, calling the squeeze “long overdue [to get] rid of a lot of the stale and weaker shorts in the market.

“Unfortunately it also prompted some buying by those excited by the rally…There is still no good reason to be long of precious metals.”

Trading volume in Shanghai’s main gold contract almost halved today from Monday’s 4-month high as Yuan prices gave back half of yesterday’s 5.6% jump.

Compared with London quotes however, Shanghai gold rose to a $3.70 per ounce premium, incentivizing new imports from the world’s central wholesale hub.

China’s gold bullion imports are not clearly shown by its official world trade data.

Bullion exports are officially banned, but crude ‘semi-manufactured’ gold items are known to move through Hong Kong.

Gold smuggling to India – the world No.1 consumer market so far in 2015, just overtaking China again – rose as a direct result of the previous government’s anti-import rules, the parliament in New Delhi was told today by minister of state for finance Jayant Sinha.

With the current administration hoping India’s wealthiest temples will put some of their gold holdings on deposit with commercial banks to give its “monetization” scheme a PR boost, the Mumbai-based India Bullion & Jewellers Association (IBJA) said today it wants to launch the country’s first electronic trading platform for physical gold by mid-2016.

“There is a need for an exchange that will cater to small jewellers’ demand,” Reuters quotes Kumar Jain, vice president of the Mumbai Jewellers Association.

Gold Trading Holds $1080 After 'Short Squeeze' Hits Near-Record Bearish Bets

December 8, 2015

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GOLD TRADING in London’s wholesale market on Monday held prices near Friday’s 3-week Dollar highs around $1080 per ounce, hit on what analysts agreed was a dash to “short covering” by bearish traders in US futures and options contracts.

Latest data gathered by US regulator the CFTC put the net positioning of ‘managed money’ traders at a negative record for the 10-year series as of last Tuesday, with bearish bets amongst hedge funds and other speculative players outweighing their bullish bets by more than 55 notional tonnes.

Across the entire Comex gold derivatives market, trading in gold futures and options saw non-commercial players holding the smallest “net spec long” position since November 2003, with that group’s bearish betting growing to its largest size since this summer’s all-time record highs.

“If the Dollar is unable to rally,” says a gold trading note from Swiss refiner and finance group MKS, “we may see further squeezes towards $1095-1100 in the short term leading into next week’s FOMC meeting.”

Adding that Thursday’s “Harami candle reversal warning has been confirmed,” London market-maker and Canada-owned bullion bank Scotia Mocatta’s latest chart analysis agrees that the “next key technical level is seen at 1095…followed by the 38.2% retracement [of the October to December slump] at $1104.”

Trading volume in the Shanghai Gold Exchange’s main gold contract today jumped to its heaviest level since August’s records, with the Yuan price closing at 1-month highs.

Shanghai gold’s premium to equivalent London quotes held better than $3.10, well above the last 12 months’ average incentive to new imports of $2.45 per ounce.

Gold trading in would-be Asian hub Singapore, in contrast, has proven so weak that a 25-kilo contract announced to much fanfare last year is being re-launched.

Fewer than 8 tonnes of bullion have been traded via the Singapore Exchange Ltd’s gold contract since October 2014, the SPX said Monday.

China’s main SGE contract traded over 60 tonnes today alone.

“Precious metals have been sold in the futures markets over the past couple of weeks,” says a note from Swiss private bank Julius Baer, “[but] we believe these positions have now been bought back in order to take profits.

With next week’s US interest-rate rise now taken for granted, the “muted inflation outlook [means] gold should remain out of favour among investors,” the bank says, cutting its end-2016 price forecast to $1000 per ounce.

Looking at Friday’s fresh drop in US energy prices after the Opec oil cartel failed to cut its production quotas, “Low oil prices suggest further downward pressure on inflation measures,” agrees Japanese conglomerate Mitsubishi’s analyst in London, Jonathan Butler.

But “while low inflation is not usually supportive of prices,” Butler says, it will likely curb the rate of US Fed interest hikes, “imply[ing] a fairly benign environment for precious metals into 2016.”

Silver trading in Asia and London on Monday also saw prices hold onto Friday’s jump, with Dollar prices keeping 1-month highs above $14.50 per ounce.

Gold Price Leaps, Erases 3 Weeks' Drop as 'Pregnant Reversal Warning' Beats Strong US Jobs Data

December 5, 2015

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GOLD PRICES jumped in London trade Friday, erasing the last 3 weeks of losses to new 6-year lows even as new data showed the US trade deficit widening last month to its worst November since 2008.

Separate US jobs data confirmed Wednesday’s private-sector ADP Payrolls report, showing a strong rise in net hiring for November just ahead of analyst forecasts.

Rising 3.7% from this week’s new 6-year low at $1046.50, the price of wholesale gold investment bars hit $1085 per ounce, just above mid-November’s weekly close.

Gold also rose priced in Euros, reversing most of this week’s 3% drop – but still heading for its lowest Friday finish since mid-September – after plunging amid yesterday’s shock surge in the single currency on the FX market in the face of extra QE bond-buying and negative interest rates announced by the European Central Bank.

“In principle, the expansionary monetary policy followed by many central banks should lend support to the gold price,” says a commodities note from Commerzbank in Germany.

“[But] market participants will now be waiting with bated breath to see what the US Federal Reserve will do in ten days’ time.”

The US is now “close” to full employment – one half of the central bank’s mandate – said Fed chair Janet Yellen to Congress in her regular testimony Thursday.

On the other half, “Longer-term inflation expectations remain reasonably well anchored,” Yellen said, “bolster[ing] my confidence in a return of inflation to 2%.”

Thursday’s ECB announcment, in contrast, “wrong-footed” traders, says US brokerage INTL FCStone, sparking “frenzied trade” – although “the precious metals complex had it relatively easier than some of the hotter markets like currencies and oil.”

The rise in Dollar gold prices “show[ed] as a Harami,” said Canadian-owned bullion bank Scotia Mocatta’s technical analysis overnight, “which in Japanese Candlesticks translates to ‘pregnant’…basically an inside day at the end of a very bearish down move.”

After Wednesday’s close to US gold futures trading “achieved a fresh cycle low at $1051,” says Scotia, “the technical picture is a Reversal warning. A higher close [Friday] will bring in fresh buying of gold.”

Across other investment markets Friday, the price of short-term US Treasury debt fell further but 10-year bonds rallied, edging yields down from Thursday’s sudden 3-week high above 2.30%.

Crude oil meantime fell hard, with US contracts dropping near 12-year lows beneath $40 per barrel, on news that the Opec oil cartel, meeting in Vienna, was unlikely to propose or agree a cut to output quotas.

New York equity markets rose sharply after the new US jobs data, but European stock markets held their earlier 0.8% losses for the day, pulling France’s Cac40 index down to its lowest level since mid-October.

Silver tracked the surge in gold prices, rising some 2.7% against the US Dollar to hit $14.55 per ounce, almost its highest level in 4 weeks.

Gold Price Jumps After 'Pregnant Reversal Warning' as Strong US Jobs Data Signal Fed Rate Hike

December 5, 2015

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GOLD PRICES jumped in London trade Friday lunchtime, hitting near 1-week highs above $1072 per ounce after new data showed the US trade deficit widening last month to its worst November since 2008.

Separate US jobs data confirmed Wednesday’s private-sector ADP Payrolls report, showing a strong rise in net hiring for November just ahead of analyst forecasts.

Rising 2.5% from this week’s new 6-year low at $1046.50, the price of wholesale gold investment bars also reversed two-thirds of last week’s $20 drop as well.

Gold also rose priced in Euros, but held a 1.7% drop for the week – heading for its lowest Friday finish since mid-September at €982 per ounce after yesterday’s shock surge in the single currency on the FX market in the face of extra QE bond-buying and negative interest rates announced by the European Central Bank.

“In principle, the expansionary monetary policy followed by many central banks should lend support to the gold price,” says a commodities note from Commerzbank in Germany.

“[But] market participants will now be waiting with bated breath to see what the US Federal Reserve will do in ten days’ time.”

The US is now “close” to full employment – one half of the central bank’s mandate – said Fed chair Janet Yellen to Congress in her regular testimony Thursday.

On the other half, “Longer-term inflation expectations remain reasonably well anchored,” Yellen said, “bolster[ing] my confidence in a return of inflation to 2%.”

Across other investment markets Friday, the price of short-term US Treasury debt fell further but 10-year bonds rallied, edging yields down from Thursday’s sudden 3-week high above 2.30%.

Gold Jumps Off 6-Year USD Low, Sinks in EUR as ECB Disappoints Euro Bears' Near Record Short

December 4, 2015

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GOLD spiked from fresh 6-year lows against the Dollar but sank versus the Euro on Thursday as the single currency jumped despite extended QE and more negative interest rates from the European Central Bank.

Stock markets in the Euro union – the world economy’s single largest currency zone – turned a 1.3% gain into a 2.5% plunge for the day as the Euro jumped more than 3 cents against the Dollar on the FX market, hitting 2-week highs 2.5% above a new 9-month low set just before today’s ECB announcement in Frankfurt.

Gold priced in Euros sank to €980 per ounce – a level first reached on the way up as the Greek debt crisis broke in May 2010 – dropping 1.7% within 90 minutes to trade below its level at end-2014 for only the second time this year.

Bullion priced in US Dollars, in contrast, rebounded 1.5% from new 6-year lows set at $1046.50 per ounce at the start of Thursday’s Asian trade.

Silver jumped 2.2% bottom to top, regaining last week’s closing level at $14.10 per ounce after setting new 6-year lows at $13.85.

“We are doing more because it works, not because it fails,” said ECB president Mario Draghi in his press conference after Thursday’s decision.

Already holding €445 billion of Euro government debt through its QE bond-buying scheme, the ECB today announced a 1-year extension of its €60 billion asset purchases to March 2017 – “or beyond, if necessary [in] achieving inflation rates close to 2%.”

Eurozone “core” inflation excluding fuel and food prices last month slowed to 0.9% on latest data.

Regional and municipal bonds are also now eligible assets for the Bank to acquire, Draghi said after the ECB cut the interest rate on its deposit facility for commercial banks by 0.1 percentage point to minus 0.30% – like the time extension to QE, much less dramatic than some economists had expected.

With maturing bonds payments also now set for re-investment in more Euro government debt, however, that cut to the ECB’s deposit rate enables it to buy shorter-term German, French, Italian and other bonds already priced so highly that they yield up to that much less than zero.

“The market has been discussing this for more than a month,” Tokyo FX strategist Masafumi Yamamoto at Mizuho Securities told Reuters earlier.

“So…any easing steps it may take today are already priced in and the Euro could rise.”

Positioning data from US regulator the CFTC show speculative betting against the Euro rose sharply last week, reaching 90% of March’s all-time record high level.

Looking at gold, “Perhaps the only bullish variable is that everyone is mostly bearish,” said a note overnight from US brokers INTL FCStone, “likely making the markets ripe for a massive short-covering rally.”

Gold’s new 6-year low against the Dollar at $1046.50 per ounce came in early Asian trade Thursday after US Federal Reserve chair Janet Yellen was joined by two formerly “neutral” voting members in saying a rate rise from 0% is highly likely at the December Fed meeting in 2 weeks’ time.

Gold Bullion Retreats to 6-Year Low as US Jobs Jump, Dollar Rises, 'Demand Muted'

December 3, 2015

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GOLD BULLION prices fell near last week’s new 6-year low of $1053 per ounce in London trade Wednesday after new data said US employment grew at the fastest pace since June in November.

New York’s stock markets held flat as US Treasury bond yields rose from Tuesday’s 1-month low of 2.14%.

Silver also fell back beneath last week’s finishing level, moving below $14.10 in wholesale bullion trade.

“Physical demand remains fairly muted,” says a note from David Govett at London commodity and bullion brokers Marex Spectron, “and most players seem to be happy to remain on the side lines until the FOMC meeting in two weeks’ time.”

Gujarat state saw gold imports during the key festival season of September to November fall 83% against the same period last year, reports The Times of India, with silver bullion and jewelry imports falling the same.

Shoppers in the key Middle Eastern malls of Dubai “are waiting for prices below $1000” according to some local retailers.

Trading volume on the Shanghai Gold Exchange – the sole conduit for private bullion to enter China, the world’s No.2 consumer market so far in 2015 – slipped Wednesday to four-fifths of the main contract’s last 12 months’ average as Chinese Yuan prices edged 0.5% lower.

But the premium over London quotes for bullion delivered to China, incentivizing new imports, held firm equal to $3.25 per ounce – some 80 cents higher than the average since December last year.

Looking at the Comex gold futures market, “Gold needs to get a close above last week’s high of 1080 in order to bring in fresh buying,” says a chart analysis from Canadian bullion bank Scotia Mocatta’s New York team.

“Key downside support is seen at [last week’s new 6-year low of] $1053 followed by $1045, the 2010 low. The overall technical picture remains bearish.”

Gold bullion today retreated to $1056 per ounce after new data from private payroll services provider ADP said the United States added 217,000 jobs in November, the fastest increase since June and beating analysts’ consensus forecast of 190,000.

With the European Central Bank expected to expand or extend its QE bond-buying program tomorrow – and to take its deposit interest rate further below zero – the US Dollar had already driven the Euro back near 9-month lows beneath $1.06 after new data said consumer-price inflation across the 19-nation currency union slowed in November to 0.9% per year excluding energy and food costs, less than half the ECB’s target.

“Growth is expected to be weaker in the Eurozone than the US, and inflation lower,” writes Chinese-owned investment and bullion bank ICBC Standard Bank’s Steve Barrow – “but the differences are not big.”

If the Federal Reserve does raise Dollar rates from zero mid-month, says Barrow, “We think that the Fed is being a bit trigger-happy.

“But we also think that the ECB has panicked a bit in considering further easing now.”

Speaking Tuesday in California, “Gradual and low is likely to be the new normal” for US interest rates, said Fed governor Lael Brainard.

“I would prefer to have more confidence,” agreed her fellow ‘dove’ Charles Evans, president of the Chicago Fed, “that inflation is indeed beginning to head higher.

“[But] the exact timing of lift-off is less important than the trajectory…[and the Fed should] raise the target interest rate very gradually…assess[ing] how the economy is adjusting to higher rates.”

Least Bullish Betting on Gold Price in 15 Years 'Likely' to See Short-Covering, But 17% Drop Forecast for 2016

December 2, 2015

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GOLD PRICES retreated to $1066 per ounce in London on Tuesday, a new 6-year low when first reached mid-November, after briefly spiking $10 higher in Asian trade as new data showed China’s manufacturing activity contracting at the worst pace in 3 years.

“Strengthen[ing] expectations of [government] stimulus in the world’s second-largest economy,” according to news-wire reports, the data saw copper and US gasoline lead a rise in traded base metals and energy prices, extending the rebound from last week’s multi-year lows.

US and UK equities rose while Eurozone stock markets slipped, but the Euro meantime rallied against the Dollar from near 2015 lows on the FX market as new data showed unemployment across the 19-nation currency zone falling last month to its lowest since 2012 while US manufacturing orders and production shrank on the ISM PMI survey.

US Treasury bond prices also rose, pushing the yield offered by Washington’s 10-year debt down to 2.18%, the lowest level since end-October and 3 basis-points below where it stood at the start of December 2014 according to Bloomberg data.

With gold prices last week hitting new 6-year lows at $1053 ahead of the US Fed’s long-delayed hike to short-term Dollar interest rates from zero still widely expected at this month’s meeting, new data released on Monday by US regulator the CFTC showed non-commercial traders in Comex gold futures and options holding the least positive position since December 2001, with the number of bullish bets falling 30% and the number of bearish bets more than doubling since gold’s spike to $1180 in late October.

Taking the bull:bear ratio of non-commercial positioning to just 1.14, that was the fastest 1-month growth in speculative bearish bets since March, and the fastest 1-month drop in speculative bullish bets since gold prices fell from the all-time peaks above $1900 per ounce in September 2011.

Chart of Comex gold futures and options, non-commercial bull-to-bear ratio

“The belatedly released Comex commitment of traders report…may have spooked some shorts, prompting the rally,” says a trading desk note from refining and finance group MKS, pointing to last week’s near-record high level of bearish bets already outstanding amongst the ‘managed money’ category of traders.

“With the [European Central Bank decision] and [US jobs data] later this week, combined with the extended short positioning, it is very likely we could see further short-covering, at least for the next few sessions.”

January gold options contracts – giving traders the right to buy or sell Comex gold futures at preset prices, wherever the market has got to – showed a big rise on Monday in bullish calls targeting $1090, according to Reuters data.

Comex February gold options, however, saw a jump in the number of bearish puts targeting $975, with the heaviest open interest now in bearish puts at $1000 per ounce.

“As the Fed raises rates and the opportunity cost of holding gold increases,” says a new 2016 outlook from French investment and bullion bank Natixis, “so we expect gold prices to drop below $1000 per ounce soon after the announcement of the first hike.

“Prices could rapidly reach $950,” says the bank’s precious metals analyst Bernard Dahdah, forecasting a 2016 average price of $970 per ounce – some 17% below 2015’s average daily gold price to date.

“The strong correlation between gold and silver,” he adds, “should lead to lower silver prices,” with Natixis forecasting a 2016 average of $12.50 per ounce – some 21% below 2015 to date.

Silver tracked gold prices on Tuesday, retreating from a 2-day high at $14.25 per ounce to reach $14.15 by mid-afternoon in London trade.

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