Gold steady, but Bernanke testimony looms
FRANKFURT (July 17) Precious metals remained caught in tight ranges early on Wednesday, as the market awaits the next statement from Federal Reserve chairman Ben Bernanke in Washington later.
Gold was last down $4.45 at $1,286.10/1,286.90 per ounce and the metal has fluctuated in a range of under $10 so far today.
Earlier in the session, it came within about $5 of the psychologically important $1,300 per ounce mark, and analysts have said this level may be on the cards if Bernanke delivers dovish comments.
"[It has been] a relatively quiet start to the week with the focus remaining on Bernanke’s communique on Wednesday," analysts at MKS Capital said.
Bernanke is due to deliver testimony on the semiannual monetary policy report before the House Financial Services Committee in Washington from 15:00 BST.
The markets anticipate that Bernanke will continue to emphasize his earlier views on easy monetary policy and this may help lift gold prices.
“[Markets are] somewhat more constructive and confident price action of late amidst almost inevitable plausible deniability,” said Michael Turek at Newedge.
“Bernanke did not mean what he said about tapering and Chinese leaders did not mean what they said about deteriorating economic performance,” added Turek. “It does seem as though the worst of the destruction is over as most metals find on-going support while flirting with cost of production.”
Bernanke's testimony coincides with the release of the US Beige Book, a collection of anecdotal evidence supplied by the 12 Federal Reserve banks regarding local economic conditions in their district. The analysis is used by the Federal Open Market Committee to help make interest rate decisions.
There may also be support for the gold price from other quarters, with wage negotiations set to begin in major producer South Africa.
"Mine operators and unions have very different ideas about what would constitute a suitable deal," analysts at Commerzbank said. "Mine producers, represented by the Chamber of Mines, are offering a four percent basic pay rise, which is below the 5.6 percent rate of inflation, but the National Union of Mineworkers (NUM), which is regarded as a moderate union, is demanding a pay increase of up to 61 percent and the radical Association of Mineworkers and Construction Union (AMCU) is calling for wages to be more than doubled.
"The mining companies, which have their backs against the wall on account of the fallen gold prices, are unable to meet such unrealistic demands," Commerzbank said. "Strikes thus appear inevitable."
Also bullish for gold is the backwardation in the London Bullion Market Association GOFO (Gold for Forward Delivery) rates which widened again yesterday.
After falling to -0.04167 on Friday, the negative lease rate for one-month gold climbed to -0.055 on Monday and to -0.05667 on Tuesday.
Two-month and three-month GOFO rates were also negative, the two-month rate reported at -0.04333 and the three-month rate at -0.025. Six-month rates, reported as negative last Wednesday, were last positive at 0.06333.
But in exchange traded gold, the torrent of outflows continues, with 1.35 tonnes leaving those funds tracked by FastMarkets on Tuesday, taking the total 2,005.85 tonnes.
In wider markets, the dollar firmed up somewhat against other major currencies. It was last at 1.313 against the euro, up 0.0012.
And in equities, the Nikkei is up 15 points at 14,615, with the Hang Seng gaining 59 points to 21,371.
Other data due out today includes US building permits and housing starts, both for June and both forecast at close to one million.
