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Gold Market 'Quiet, Back to Slow Motion' Ahead of US Fed Decision on Rates

July 30, 2015

GOLD MARKET trading was quiet in London on Wednesday, as commodity prices slipped again and Western equity indices ticked higher ahead of the July decision on interest rates from US central bank, the Federal Reserve.

The Euro steadied above $1.10 on the FX market – capping gold some 1% above last week’s new 2015 lows at €982 per ounce – while major government bond prices fell, nudging US and European yields higher.

“Given the risk of volatility owing to the Fed statement,” says Wednesday’s note from Chinese-owned ICBC Standard Bank’s analysts in London, “the gold market is understandably quiet.”

“Gold is back in slow motion mode,” says another bullion bank’s sales desk.

“The past few days have seen bearish momentum in gold fading [even as] the pace of bearish news has increased.”

The gold market “has traded quietly in a relatively narrow range the last couple of days” agrees Swiss bank and London bullion market maker UBS, “mostly due to market participants waiting for clues from the FOMC later today.

“However, there are also indications of physical demand starting to creep in and help support the market.”

Shanghai’s gold market today saw premiums on the main wholesale contract in China – the world’s No.1 consumer market in the first half of 2015, according to consultancy GFMS – rise to $2.70 per ounce above comparable London quotes.

Higher than the last 12 months’ average, that marks a bigger incentive for Chinese wholesalers to import bullion from the world market’s central vaulting location.

Looking however at Monday’s news of a 10-month low in net gold bullion imports to China through Hong Kong, “Physical demand globally is certainly slowing,” says Swiss refiner MKS’s trading desk, also noting last week’s news of weak exports from Switzerland – heart of the world’s bar refining industry.

“July’s figures will be something to watch,” MKS adds, “given they [will] coincide with a -6.5% price reduction” – the kind of move associated with stronger Asian demand in recent years.

Further ahead, says a note from Australia’s ANZ Bank on Western investment, “Continued liquidation of gold from exchange-traded funds and the extent of investor positioning in Comex [futures and options] does suggest that prices will stay on the back foot for some time.”

Might China’s equity market crash “lead to renewed demand” for gold, asks Swiss private bank and gold ETF provider in a note.

“From our point of view, China is the key bullish wildcard for gold as it could trigger a short-covering rally in the futures markets.”

With no new economic forecasts or press conference scheduled from the Federal Reserve meantime until the September meeting, analysts today expected “no change” to the Fed’s 0% policy, with the outstanding stock of QE bond purchases set to remain unchanged as well.

Gold Price 'May Rise' on Fed Rate Hike But 2015 Investment Sinks as Global Demand Drops 10%

July 28, 2015

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GOLD PRICES steadied against a falling US Dollar on Tuesday in London, trading around $1095 per ounce as Western stock markets bucked another slump in Chinese equities to

Commodity prices also ticked higher, rising from new 13-year lows on Bloomberg’s index, ahead of Wednesday’s expected ‘no change’ decision on US rates from the Federal Reserve.

“It remains our view,” says London-based consultancy Thomson Reuters GFMS, “that a US rate hike this year is already priced into the market.

“An increase [at the Fed’s September or December meetings] could well prompt a review of asset allocations that leads to an increase in gold holdings.”

So far in 2015 in contrast, gold investment in bullion coin slowed to its weakest level since at least 2008 on GFMS’s new data, released Tuesday.

Retail gold bullion coin investment demand, quarterly, Thomson Reuters GFMS

“Retail investment – [meaning] demand for bars and coins – fell another 12% year-on-year” in the April-June period, says GFMS, “and is now some 63% below the Q2 2013 peak” despite strength in Europe, notably Germany.

With the gold price averaging 7% below the first half of 2014, total world gold demand in H1 2015 dropped some 10% annually on GFMS’s data, with jewelry and investment demand from China – the world’s No.1 consumer market last year – dropping “substantially”.

Gold prices in Shanghai today edged higher against London quotes, pushing the premium per ounce – an incentive for new imports – up to $2.50 according to Swiss refining and finance group MKS’s trading desk.

Less demand for gold bullion to use in ‘trade financing’ means imports are likely to fall further from June’s 10-month low, says GFMS.

“All this gold that was used for financing,” agrees Michael Mesaric, CEO of giant Swiss refiner Valcambi – sold this week to Indian jewelry corporation Rajesh Exports for US$400 million – “has been given back.

“There is liquidity in the market and liquidity is cheap. There is no need to use gold anymore,” Mesaric told Reuters, forecasting a drop in China’s imports of perhaps 40%.

Following today’s 1.7% drop in the Shanghai stock market, Beijing assured Chinese investors it will continue to support equities prices after the last 7 weeks’ 30% drop, with the People’s Bank pumping the equivalent of $5 billion into the money market.

“Physical demand in Asia remains lackluster,” says one brokerage today, pointing to “both the Indian and Chinese markets.”

“Market participants,” says a note from South Africa’s Rand Refinery, “will be closely watching the Federal Reserve meeting” for hints of whether a rate rise is coming in September.

Gold Bullion Rallies Near $1100 But Spec's Turn Bearish, Big ETF Shrinks, China Imports Fall

July 28, 2015

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GOLD BULLION recovered a $10 loss in London on Monday to trade just shy of $1100 per ounce – a new 5-year low when first hit last week – as Western stock markets fell following the 2nd heaviest-ever drop in China’s main equity index.

The Shanghai Composite dropped 8.5%, reversing half of its recent bounce from June’s 35% plunge.

Eurozone stock markets fell over 2% as the single currency rose on the FX market, pushing the price of gold bullion for German, French and other monetary union citizens back towards Friday’s new 2015 lows at €982 per ounce.

Wholesale gold priced in Dollars had earlier dipped below $1090 per ounce after news of stronger-than-expected orders for durable goods in the US, but rallied with silver prices to stand unchanged by the close of London dealing on Monday.

“Gold managed a late rally on Friday evening on the back of a weakening Dollar and end of week short covering,” says London brokerage Marex Spectron in a note.

“It is possible,” says bullion bank and London market maker Scotia Mocatta, “that we will see a small relief rally in the coming days, but ultimately the risk is to the downside.”

“The latest CFTC [positioning] data show the extent to which gold has lost its lustre,” says Chinese-owned ICBC Standard Bank’s London team, “with the net speculative position still long, albeit not by much, with speculative shorts climbing to a fresh record high while longs trudge towards the exit.

“While the record short position opens up the scope for a significant short covering rally,” says ICBC Standard Bank, “the trigger seems somewhat elusive.

“Physical purchasing activity out of Asia is also backing off and appears to be waiting for a price floor to emerge while ETF liquidation is adding to the downwards pressure.”

The giant SPDR Gold Trust (NYSEArca:GLD) has now shed 31 tonnes this month so far from the bullion needed to back its shares, the fastest pace since December 2013 capped that year’s huge outflow of metal.

Net imports of gold bullion to China through Hong Kong, adjusted for re-exports, fell in June to a 10-month low of 22.1 tonnes, Bloomberg reports.

Gross imports to China were “the lowest since June 2011 according to the latest Hong Kong customs data,” says Jonathan Butler at Japanese conglomerate Mitsubishi Corporation, “support[ing] our thesis that physical gold demand in China is cooling due to lower jewellery offtake amid the economic slowdown and recent stock market rout.”

Gold Bullion Near $1100 But Spec's Turn Bearish, Big ETF Shrinks, China Imports Fall

July 28, 2015

City Gold Bullion

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The Shanghai Composite dropped 8.5%, reversing half of its recent bounce from June’s 35% plunge.

“Gold managed a late rally on Friday evening on the back of a weakening Dollar and end of week short covering,” says London brokerage Marex Spectron in a note.

“It is possible,” says bullion bank and London market maker Scotia Mocatta, “that we will see a small relief rally in the coming days, but ultimately the risk is to the downside.”

“While the record short position opens up the scope for a significant short covering rally,” says ICBC Standard Bank, “the trigger seems somewhat elusive.

“Physical purchasing activity out of Asia is also backing off and appears to be waiting for a price floor to emerge while ETF liquidation is adding to the downwards pressure.”

Net imports of gold bullion to China through Hong Kong, adjusted for re-exports, fell in June to a 10-month low of 22.1 tonnes, Bloomberg reports.

Gold & Silver Hit New Multi-Year Lows as ETF Trusts 'Dishoard' Ahead of 'Looming' Fed Rate Hike

July 26, 2015

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GOLD and SILVER prices dropped to new 5 and 6-year lows respectively for US investors on Friday, falling as European stockmarkets lost earlier gains and commodity prices fell to new multi-year lows.

“Gold and silver remain dominated by expectations of US rate hikes,” says one bullion bank’s commodities team in a note.

“Gold has always had a dual nature as a currency and a commodity,” adds Matthew Turner at Australian bank Macquarie separately.

“At present it is not desired in either form. The Fed remains on course to raise rates, while physical markets are lacklustre.”

“To some people,” says Leon Westgate at Chinese-owned ICBC Standard Bank’s London office, “gold is either a pseudo-currency or pseudo religion.

“We view gold as somewhere to park your cash in moments of fear when you don’t know what else to do with it. [So] we believe that gold will likely remain in a bear market going into H2 2015, mainly as a result the continuing lacklustre…environment.”

Crude oil meantime fell further below $50 per barrel in London trade, with copper – to which silver prices correlate when not tracking gold so closely – falling to new 6-year lows.

“Ultimately,” says this week’s analysis from London-HQ’ed consultancy Metals Focus – looking at the People’s Bank of China’s gold bullion reserves update last Friday – “we believe continued Chinese purchases will be supportive for prices at the margin.

“At the same time, however, it is hard to see investors become excited, especially as the news is now priced in and also given conventional assets such as equities and US Treasuries continue to offer better returns.”

Gold, silver and other precious metals funds this week saw $1.1 billion pulled out, according to data from Bank of America Merrill Lynch.

The giant SPDR Gold Trust (NYSEArca:GLD) shed 23 tonnes from the bullion needed to back its exchange-traded shares in the week-ending Thursday – the fastest outflow since July 2013 marked the end of that spring’s gold price crash, and taking the GLD’s holdings to the smallest level since September 2008 at 684 tonnes.

From its 2004 launch to the peak holdings of end-2012, the GLD accumulated an average 3.1 tonnes per week. Gold prices rose a compound weekly average of 0.3% against the Dollar.

Now in mid-2015, “With a positive outlook for global growth, a rapidly strengthening Dollar and hawkish statements from the Fed, investors are seeking returns from other asset classes,” says J.P.Morgan Asset Management’s Nandini Ramakrishnan, quoted by Portfolio Adviser.

Global gold demand won’t outstrip supply until 2017, says ICBC Standard Bank’s Westgate, the first such “deficit” since 2012.

But that forecast “could be partly countered by a decline in central bank purchases and a continuing liquidation of ETFs,” he adds, coupled with an increase in scrap supply in the medium- to long term.”

“With a coming rate hike from the Fed,” says London market-maker and benchmark price participant Societe Generale’s sales desk, “asset managers are clearly re-balancing portfolios.

“Gold ETFs are facing high levels of exits, and physical gold is being dis-hoarded.”

Silver’s largest exchange-traded trust fund, in contrast, continued to hold investor interest this week, with the iShares Silver Trust (NYSEArca:SLV) needing 10,227 tonnes of bullion to back its stock, near a 1-month high and little changed from the start of this year.

Gold & Silver Hit New Multi-Year Lows as ETF Trusts 'Dishoard', Money Managers Choose 'Better Paying' Assets

July 25, 2015