US Gold Investing Flows 'Driving Price' as Fed 'Dove' Calls for Rate Hike

GOLD INVESTING prices retreated with world equities, commodities and government bond prices Friday in London, slipping to 3-day lows of $1344 per ounce against a rallying US Dollar but holding on track for 0.8% weekly gains after a formerly ‘dovish’ US Fed president warned of “growing risks” from a further delay in raising interest rates.
Previously called “a solid dove” in favor of keeping rates low, “There are longer-term risks…compounded if delays in tightening earlier [then] require more rapid increases later in the cycle,” said Boston Fed president Eric Rosengren in a speech in Massachusetts.
Crude oil dropped 2% for the day and silver prices shed the last of this week’s previous 3.5% gains – dropping back to $19.45 per ounce – as the EuroStoxx 50 index lost 0.5% from last Friday.
Ten-year US Treasury bond yields rose to the highest level since the UK’s shock Brexit referendum result in late June at 1.65%.
Betting on US Dollar interest-rate futures today put the likelihood of a hike at the Federal Reserve’s September meeting in 2 weeks’ time up to 27% from 18% yesterday.
Chart of September 2016 US Fed rate-hike expectations vs gold price. Source: ICBC Standard Bank
“Tighter US monetary policy is still a key risk” for gold investing says Tom Kendall, head of precious metals strategy at Chinese-owned investment and bullion bank ICBC Standard Bank in London, but after the recent run of weaker economic data “the risk has been deferred to December, or more likely Q1 2017.”
Finding “few reasons to be short” of gold or other precious metals right now, Kendall’s latest quarterly outlook predicts “some upside but no fireworks” for the bullion market.
Contrasting gold investing with consumer demand, this year’s strong price gains to date remain “indebted” to US money managers, ICBC Standard’s chief precious metals strategist warns, risking a sharp price drop if investing flows reverse, especially from exchange-traded trust fund vehicles.
Analysis from investment and bullion market-making bank Societe Generale this week said a drop in ETF holdings – driven by shareholder selling – would take gold prices back towards late-2015’s six-year lows if 2016’s inflows were entirely reversed.
Surging at the fastest pace since 2009, “Monthly changes in ETF flows have far exceeded the rate of Chinese gold imports for much of this year,” adds Kendall at ICBC Standard Bank.
But “with the Indian [jewelry] market slowly normalising and the risk of a US rate rise rapidly diminishing again,” he concludes, “we continue to expect gold to break the $1400 level sooner rather than later.”
After China reported stronger-than-expected imports for August and only a 2.8% drop in exports – the slowest annual fall since April – new data today said consumer-price inflation in the world’s largest gold-buying nation eased to 1.3% last month, the slowest pace in well over a year.
Germany’s exports sank 10% year-over-year in July, while France’s industrial output shrank 0.6% from June but its government budget deficit widened.
The Euro erased half of this week’s earlier gains on the FX market, pushing prices for currency-union savers wanting to start gold investing back up to last Friday’s finish at €1188 per ounce.


This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. This report was produced in conjunction with ABC Bullion NSW.

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