GOLD BULLION slipped to its lowest Dollar price in almost 6 years Thursday lunchtime in London, dropping with the Euro currency and other precious metals as Western stock markets fell hard.
Betting in the futures market put chances that the US Federal Reserve will next month raise its key lending rate from 0% at stronger than two-in-three.
Speaking ahead of a raft of other Federal Reserve policymakers, including chair Janet Yellen, “Prudence alone suggests [we should] normalize the policy rate
in the US,” said St.Louis Fed president James Bullard – a noted ‘hawk’ due to join the voting panel in 2016 – in a speech this morning.
“The US economy is quite close to normal [with] unemployment of 5%…and inflation net of the 2014 oil price shock only slightly below the committee’s [2.0% per year] target.”
The Euro meantime touched fresh 7-month lows on the FX market after European Central Bank president Mario Draghi said external “risks” to economic recovery
in the 340-million citizen single-currency zone are “clearly visible” – taken as a sign of fresh monetary stimulus to come at the ECB’s December meeting.
“Failing to deliver a pre-warned easing risks a surge in the Euro,” says ICBC Standard Bank FX strategist Steven Barrow, now forecasting that the ECB will cut deposit rates further below – and perhaps increase its QE bond-buying – at the same time as the US Federal Reserve finally raises Dollar rates from 0% after 7 years.
“To help push inflation back to the 2% target [by devaluing the Euro]…the ECB will get more bang for the buck by kicking off a divergence in policy with the Fed in December.”
Gold prices today hit $1074 per ounce in London’s wholesale bullion trade, $3 below July’s bottom and the lowest level in spot dealing since February 2010.
“It seems increasingly likely the Fed will start a slow rate hike cycle in December,” says a note from Dutch bank ABN Amro, “resulting in a stronger US Dollar versus the Euro, Yen and precious metals.”
Gold bullion priced in Euros also fell Thursday but less steeply, touching 5-week lows just above €1000 per ounce and still showing a 2.5% gain for 2015 to date.
Bullion priced in Dollars, in contrast, has lost 8.2% since the New Year.
“Capitulation may be close at hand,” says ICBC Standard Bank precious metals strategist Tom Kendall, “but it does not feel like we are there yet.”
Wholesale silver bullion bars spiked lower to a 3.5-month low of $14.21 per ounce, holding above August’s 6-year low of $14.00.
US Treasury bonds meantime ticked higher in price, pushing 10-year yields down from the week’s earlier 4-month highs above 2.36%.