GOLD PRICES recovered from a near 1-week low beneath $1125 per ounce in London on Tuesday, trading 0.6% higher against a rising Dollar following better-than-expected US consumer confidence data.
Priced in the Euro, gold rallied 1.0% from its first drop below €1000 in 8 sessions.
Inflation in Germany turned negative this month for the first time since January, a flash estimate said Tuesday, with consumer prices dropping 0.2% from a year ago.
European stock markets ended the day slightly lower after Asian shares sank, but New York equities rose meantime with Treasury bonds, pushing the 10-year US yield down to new September lows at 2.08%.
The central bank in India – the world’s No.2 gold buying nation – today cut its key interest for the 4th time this year following a new record-low in official inflation data.
“It seems clear,” says one bullion bank’s analyst in a note, “that capital seeking a refuge from emerging markets volatility, credit market stresses, and base metal weakness is going into Treasuries and Bunds, rather than gold.”
Looking at Asian gold prices, “the Indian market is at a notable discount to world prices,” adds James Steel at London bullion market maker and clearing bank HSBC, “indicating little import demand despite the proximity of the gold buying season” which culminates with Diwali, falling this year in early November.
“This may be because of stellar imports in August. Nonetheless, reduced demand from a major buyer may limit gold’s upside.”
Stock markets in China – the world’s heaviest miner, importer and private consumer of gold – ended Tuesday almost 3% lower. Bullion prices on the Shangai Gold Exchange, which will also close for a week from tomorrow night for the National Day celebrations, meantime fell to a premium of just 40 cents per ounce above London quotes, cutting the incentive for new imports.
Gold prices are “hardly benefitting from the rout we saw in the US stock market,” adds US brokerage INTL FCStone, but “we think gold will likely take somewhat of an inverse cue from the US equity markets…especially if the selloff in global equity markets continues.”
“Without question,” says Philipp Vorndran, capital market strategist at €20 billion asset manager Flossbach Von Storch, “first-class equities are indispensable for generating wealth in a low interest rate environment. However, the perception that the financial system has become safer is naïve.
“[Monetary policy] is an enormous experiment with an uncertain outcome. If it fails, people’s confidence in the paper money system will disappear. Gold should therefore be an integral part of any broadly diversified portfolio.”
But “the benign inflation outlook and the view ahead for US interest rates are not very supportive of gold’s value,” counters Andy Seaman, partner and CIO at London’s $1.6 billion Stratton Street Capital – also speaking to CityWire – “and even with the volatility seen in the Chinese stock markets, gold has found it difficult to maintain support.”