China Demand "Weak" As Gold Hits 1-Month Low After Fed Comments

November 13, 2013

ANALYSTS cited comments from a US Fed policymaker on a likely reduction next month in the pace of asset purchases for a new 1-month low in gold Wednesday morning, with prices eventually bouncing $15 from $1262 per ounce as world stock markets also slipped.

QE tapering "could very well take place" in December, said Atlanta Fed president Dennis Lockhart late Tuesday.

This jars with analyst forecasts, which after the central bank failed to start tapering in September now see the Fed waiting until March according to Bloomberg News' latest survey.

Current vice-chair Janet Yellen, due to be installed by then as Fed chief, speaks to US lawmakers tomorrow to defend her nomination.

"Technically, gold is finding strong support at $1275," says a note from South African investment bank and global bullion dealers Standard Bank.

But "a break lower is likely in the absence of strong physical demand...Demand from China has improved marginally, but is still weaker than the last time gold was trading below $1300 in mid-October."

"Gold's negative reaction," Bloomberg quotes HSBC analyst Howard Wen, "to the possibility of a December Fed tapering indicates that the bullion market is likely to remain sensitive to expectations for changes in monetary policy.

"We expect the bullion market to remain data-dependent."

"Price action is weak," says a technical analysis from Scotiabank, "with the metal registering 7 down days in the past 10 trading session."

Now more bearish on gold than silver, SocGen technician Stephanie Aymes says that "short-term, 1285/89 will limit upside" in gold, now most likely heading to the recent low at $1251 before dropping to $1222 over the next 3 months."

"In terms of maintaining the immediate pace of descent," Credit Suisse analyst David Sneddon told Reuters on Monday, "I would feel more comfortable seeing $1268 broken, but our bias is for prices to come through there."

"For me," says Richard Adcock at fellow Swiss investment bank and London market-maker UBS, also speaking Monday to Thomson Reuters, "the more significant support would be the 50% retracement of the February 2001 to September 2011 advance, which stands at $1082.60.

"That for me would be the next longer-term target level to look for over the next weeks and months."

Gold for UK investors meantime fell again through £800 per ounce on Wednesday, as the British Pound reversed yesterday's drop following improved economic forecasts from the Bank of England.

UK interest rates are not certain to rise, however, if unemployment falls to 7%, said central-bank governor Mark Carney, addressing recent talk of a possible rise in UK interest rates when presenting the latest quarterly Inflation Report.

Seven per cent "is just a staging post," said Carney, putting the odds of a drop to that level by end-2014 at 40%.

UK joblessness fell to 7.6% over the summer, new data said today. Average earnings, however, continued to lag the rate of consumer price of inflation.

Following gold lower but failing to rally as hard, meantime, silver today touched a 1-month low at $20.60 before recovering to $20.80, some 3.4% down for the week so far.

Silver investment demand in 2013 will account for some 24% of the total market, said Andrew Leyland of Thomson Reuters GFMS, presenting at last night's Silver Institute dinner, up from 4% a decade ago.

That rise mirrors the decline GFMS reports in photographic demand, down from 25% of the global silver market in 2003 to just 5% today.


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.

 

It is estimated that the total amount of gold mined up to the end of 2011 is approximately 166,000 tonnes.