Analysts Split Over Fed's 2014 Impact On Gold As QE In Spotlight

December 16, 2013

The PRICE of gold bounced from a steady drop Monday lunchtime in London, trading back at $1234 per ounce as Asian stockmarkets ended sharply down but Europe ticked up ahead of this week's US Federal Reserve policy decision, due Wednesday.

China's gold premiums above international prices edged lower again, dropping to $6 per ounce at the close of solid trading on the Shanghai Gold Exchange.

Silver tracked and extended the moves in gold, cutting an earlier 1.2% drop in half to record a London Fix of $19.50 per ounce – exactly the level of Monday last week.

Looking ahead to Wednesday's Fed announcement, "A deferral of [QE] tapering and year-end squaring should be positive for gold," says a Japanese conglomerate's precious metals team.

Last week's high of $1268 per ounce reached Tuesday came as speculative traders in US gold futures and options raised their bullish bets and trimmed their bearish positions, new data from regulators showed Friday.

Over the week-ending Tues 10 December, the so-called speculative "net long" of bullish minus bearish bets held in US gold derivatives by non-industry traders rose by more than one-fifth to a 3-week high.

Equal to 184 tonnes by value, however, the net long speculative position on gold remained near multi-year lows, down by two thirds from the start of 2013.

"If the Fed announces that it will be scaling back its bond purchases," says Commerzbank in Germany, "[it] could pave the way for higher prices" as it removes uncertainty.

"Tapering," agrees a Singapore dealing desk in a note, "does not automatically mean a one-way bet on lower gold."

But while the US Fed "will likely not do anything at its meeting," reckons INTL FCStone, a US brokerage and dealer, any "telegraphing" of its early 2014 intentions "will set up a weaker tone in gold heading into year-end, with a good chance that we could take out our 2013 lows in the process."

Last week J.P.Morgan analysts cut their 2014 average gold forecast by 10% to $1263 per ounce.

2014 prices will average $1294 per ounce says Bank of America Merrill Lynch, repeating its forecast from September according to the Dubai Chronicle.

"Bearish conditions persist," says Swiss investment and London bullion bank UBS.

"We see little to change our near-term outlook of being mildly bearish on gold," agrees ANZ Bank's precious metals note Monday.

"Gold has trended downward since late August," notes a technical analysis from Societe Generale. 

"Since late October, a steeper channel has traced but [now] a sideways market is possible."

Whatever the Fed decides Wednesday on its quantitative easing program, unemployment above 6.5% means the US zero interest-rate policy will remain "appropriate", the central banks has repeated over the last 12 months, so long as inflation doesn't rise above 3% or 4% per year.

The latest US budget deal does not extend unemployment benefits launched in 2008 for the longer-term jobless.

That means some 1.3 million people stand to lose benefits from December 28th, potentially knocking 0.2 or even 0.5 percentage points off the official US jobless rate, according to Goldman Sachs and J.P.Morgan analysts, currently at a 5-year low of 7.0%.

 

Adrian Ash

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.

 

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

Gold Eagle twitter                Like Gold Eagle on Facebook