GOLD PRICES held the $1060 per ounce level in London’s wholesale market Tuesday, trading some 1.4% above this month’s new 6-year low as Western stock markets rallied hard ahead of tomorrow’s long-expected US rate rise from the Federal Reserve.
Crude oil stabilized above yesterday’s plunge near 11-year lows but base metals fell again as the Baltic Dry Index of shipping costs fell almost 5% to a new 30-year series low according to Bloomberg News, pointing to the collapse
in China’s steel output.
Silver today edged back above $13.80, some 15 cents above Monday’s new 6-year low
, but still more than 25% below January’s 2015 highs over $18 per ounce.
“We are seeing quiet conditions in most markets,” says a note from US brokerage INTL FCStone, “[and] don’t expect much to happen over the course of the next 36 hours or so, as markets wait.”
“Gold is still faced with selling pressure,” says a trading note from Hong Kong dealer Wing Fung Precious Metals, saying that “as risk increases” so do difficulties for the gold market.
“The big risk [for precious metals prices
] is that the Fed finds non-zero rates aren’t so bad after all,” Reuters quotes Australian bank Macquarie’s analyst in London Matthew Turner.
“Then people will begin to price in a more aggressive tightening cycle.”
“If we’re to believe you should raise rates
for financial stability reasons,” says former US Treasury secretary and one-time Fed chairman candidate Larry Summers in an interview, “you have to believe there’s a serious problem of over-confidence, of bubble formation.
“You can’t say that today of high-yield bonds, emerging markets or commodities.”
“I hope the Fed will not now invest its credibility
,” Summers adds in an article for the Washington Post
, “in signaling further increases until and unless there is much clearer evidence of accelerating inflation.”
The gap between 10-year and 2-year US Treasury yields
slipped Tuesday near the lowest levels of the last 8 years, retreating rather than rising steeply as happened in each of the five US recessions since 1980.
The slump in corporate debt prices is meantime sending a “false recession signal”
according to portfolio strategists at US investment bank Goldman Sachs, dismissing last week’s plunge in many high-yield bonds.
“We are cautiously optimistic on gold prices into 2016,” says a note from Swiss bank and London bullion market maker Credit Suisse, “underpinned by our view that ETF selling pressure will continue to lose influence…physical demand will be a source of strength, central banks will continue buying and supply will begin to decline.”
Repeating its post-2017 long-term forecast of $1200 per ounce, but cutting 2016’s average target from $1175 to $1150, Credit Suisse believes that the gold mining industry’s combination of “relatively short average reserve life” (below 10 years for the 7 largest miners in North America) plus the current switch to mining “high grade” deposits to cut production costs will “result in a challenged supply outlook.”
But gold price rises “will be limited,” says a trading-desk note from a fellow London bullion market maker, “as mining companies [also] continue to manage active and opportunistic hedge programs aimed at keeping some certainty over sales revenues in front of their capital expenditures and other debt servicing.”