GOLD PRICES rallied from yesterday’s new 6-year benchmark lows in London trade Friday, recovering 1.2% to $1060 per ounce as European stock markets followed Wall Street’s losses by falling over 1% by lunchtime.
Japan’s Topix stock index closed Friday 1.9% down as the Yen jumped against the Dollar after the Bank of Japan surprised analysts by increasing the pace and scope of its monthly QE asset purchases, but not as fast as many hoped.
Short-dated US Treasury bonds rose in price, easing yields down from the multi-year highs hit after the Federal Reserve raised its key interest rate from 0% on Wednesday.
Major commodity indexes ticked higher from their new multi-year lows, but crude oil slid again, taking Europe’s benchmark Brent contract down 1.3% to within 50 cents of its lowest price since July 2004 near $36 per barrel.
Silver rallied with gold prices, reclaiming all of the week’s earlier 2% drop to new 6-year lows and trading above $13.90 per ounce Friday afternoon in London.
“We didn’t find anything in [the Fed’s] verbiage to make us more bearish gold,” says precious metals analyst Tom Kendall in ICBC Standard Bank’s latest Commodities Weekly.
But inflation rising “only slowly”, plus “risk appetite being crushed by regulation, and a Fed that has taken the first step on a rate hiking path…do not warrant bullishness either.”
“The best the gold market can hope for [in] 2016,” Kendall goes on, “is that in US Dollar terms the metal has now found equilibrium, with jewellery, physical investment and central bank demand able to absorb mine supply, scrap and a diminished pace of liquidation from (primarily) US investors.
“But hope is not a strategy, and for now shorts retain the upper hand.”
The central bank of Russia added another 1.5% to its gold bullion reserves last month, new data showed Friday, taking its total holdings to 1,393 tonnes – maintain its No.6 position amongst state-owned hoards after being overtaken in mid-2015 by China.
The value of Russia’s gold, however, fell over 5% in Dollar terms as the price of bullion dropped at its fastest pace since the 2013 gold crash.
Amongst private investors, “Global [gold] bar and coin demand is more than double its pre-crisis levels,” says head of market intelligence Alistair Hewitt at market-development organization the World Gold Council.
“While there are some concerns about GDP growth across emerging markets, economic output continues to increase and so do incomes.”
With gold prices in India – the world’s heaviest consumer market in 2015 – failing to drop in response to the US Fed’s rate rise, “We do not see any surge in gold coins and bars sales,” the Economic Times today quotes major retailers RiddiSiddhi Bullion’s vice-president Samir Shah.
Shah does, however, expect “more jewellery sales [after consumers] were holding back their purchasing decision for [the US Fed decision] but now the wait is over.”
Looking at Western money managers’ positioning, “The new tightening cycle may be negative for gold initially,” says analyst Rhona O’Connell, explaining the latest 3-year outlook from Thomson Reuters GFMS, “but fresh clarity [on US rates] will likely drive asset re-allocation and gold should benefit – especially given the stalling in the S&P and Chinese investors’ nervousness about the Shenzhen indicies.”
