GOLD BULLION erased an overnight 0.6% gain versus the falling Dollar in London on Tuesday, trading back at $1232 per ounce as Asian stock markets shrugged off yesterday’s drop in US equities but European shares held flat ahead of tomorrow’s Federal Reserve decision on US interest rates.
Major government bond prices ticked higher, nudging yields down, as commodities steadied.
The British Pound broke new 2-month highs above $1.4550, driving the price of gold bullion down to a new 10-week low of £847 per ounce for UK investors.
Trading in US interest-rate bets now puts no chance on the Fed raising from 0.50% tomorrow, but the odds on a hike at the June meeting have risen above 1-in-5 – up from 1-in-6 a month ago – according to data from futures exchange CME.
“The more tame Fed tightening cycle, compared to expectations last year, should support gold,” says bullion market-maker HSBC’s London analyst James Steel.
But “investors are trimming risk ahead of the FOMC tomorrow,” says a note from commodities and bullion bank ICBC Standard – which this month became a market-making member of the London Bullion Market Association.
The bank also points to higher commodity trading costs in China – aimed at deterring violent price swings after steel prices zoomed 47% higher from 13-year lows in 2016 so far.
“Loose monetary/credit policies…are the main drivers behind the latest sharp rally, rather than improving fundamentals,” says analysis from US investment services group Bank of America-Merrill Lynch, warning that China’s “shadow banking sector doesn’t price risks correctly because of all sorts of implicit guarantees” from the Beijing government.
“[There’s also] rising concern (again) about corporate bond default rates in China,” says ICBC Standard Bank, after 90% of Chinese investment funds in corporate bonds lost value last week on what Bloomberg calls “concerns [about] spreading corporate note defaults.”
The Shanghai Futures Exchange (ShFE) said last week it is raising transaction fees for rebar steel, while the Dalian Commodity Exchange (DCE) said Thursday it is raising trading margin downpayments for iron ore contracts from 7% to 8%.
Amongst Western money managers, “Gold has been the primary driver of [commodity] investment flows so far in 2016,” says the UK’s Barclays Bank, “taking over from oil, which was the dominant driver in 2015.”
London market-maker and bullion clearing member, Barclays in January closed much of its precious-metals division, and is reportedly struggling to find a buyer for its UK vault.
“[Gold’s] correction, if any, is likely to be a temporary pause,” says French investment and bullion market-making bank Societe Generale’s technical analysis team.
While $1190 per ounce “remains a key support medium term…[gold is now] testing short term channel support” from the gentle uptrend of higher highs and higher lows in April, now coming in at $1230 on SocGen’s charts.
Silver prices today held steady with gold bullion, trading at $16.90 per ounce, some 4.5% below last week’s sudden 11-month high.
Meantime in India – traditionally the world’s No.1 private consumer market for gold – jewelers in Delhi re-started their strike in protest at a new 1% sales tax, with The Hindu newspaper finding “most of the jewellery shops in the capital closed” on Monday despite the fast-approaching Akshaya Tritiya festival and spring wedding season.
