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.
