GOLD PRICES fell to 1-week lows in London trade Wednesday afternoon as Western stock markets cut earlier gains and crude oil tumbled following news of a dramatic build in US energy stockpiles.
Total US crude oil stocks grew by more than 8 million barrels last week, the Energy Information Agency said, the fastest accumulation since April as imports and gasoline production grew.
After holding firm near last week’s closing level of $1177 per ounce, gold prices dropped 1.1% and crude oil fell more than 2%.
Traders returning from the London Bullion Market Association’s annual conference in Vienna – which raised “existential questions” for the industry as one speaker put it – had earlier found only soft interest at gold’s morning benchmarking auction, with demand and supply clearing in the key afternoon session at $1167.10 per ounce.
That was the lowest LBMA Gold Price since Tuesday last week.
“The current gold price,” says one bullion bank delegate reviewing the conference, “underlines the struggle of the industry to decide which way to go.”
Gold’s 13-week rally “appears to be positioning related,” adds derivatives strategist Maneesh S.Deshpande at investment bank and bullion market-maker Barclays, pointing to short-covering by bearish traders while new bullish betting in the futures and options market “does not appear to be extreme.”
While Barclays had “expect[ed] the current rally to continue…however, we believe the upside to be limited,” Deshpande goes on, “as the fundamentals are still soft for gold…with central bank buying remaining steady and gold production forecast at multi-year highs.”
Russia added another 34 tonnes of gold to its 1,300 central-bank reserves last month – the sixth largest national hoard – but European central bankers speaking at the LBMA conference in Vienna showed more appetite for lending out their existing holdings than expanding them.
Borrowing and selling by gold-mining companies wanting to “hedge” their production against further price falls remains muted, the conference also learnt, with short-term options derivatives a preferred, but small strategy at present.
“Those people who believed that [the recent rally] was the start of a bull market,” adds another LBMA conference attendee, David Govett of brokers Marex Spectron, “may be disappointed.
“I personally believe it is the beginning of nothing and that the market will drift lower over the coming weeks.”
Also reviewing the conference however, “Vienna was well attended,” says ICBC Standard Bank strategist Tom Kendall, “and the atmosphere was more ‘keep calm and carry on’ than ‘band plays on as ship goes down’.”
Even so, “Attendees did not miss much action while away from their desks.”
Gold bullion needed to back shares in the US-listed SPDR Gold Trust ETF (NYSEArca:GLD) briefly peeped above 700 tonnes for the first time since July on Friday, recovering half of Monday’s 7-tonne outflows in yesterday’s trade.
Today’s turnover on the Shanghai Gold Exchange – the only legal route for bullion into China, the world #1 consumer market – again held firm Wednesday, but prices stayed flat to lower against quotes in London after world gold prices last week touched near-4 month highs.
Silver also fell in London with gold prices, extending its drop from last Friday’s 18-week closing high at $16.05 to 2.2% so far.
