A week in gold: Bears hold sway as debt fears ease
NEW YORK (Oct 12) Gold bears were in full flow this week, sending the price of the metal lower for a second week running and for the sixth week out of seven.
For them, the debt ceiling deadline and the remote possibility that US politicians would not see sense in time to agree a compromise was the last prop holding it up at current levels.
On cue, hopes of a deal on the US debt crisis rose Thursday as the Republicans and President Obama at least agreed to consider talks about their differences ahead of the 17 October deadline.
With that support gone, the gold price is set to fall claim the bears.
Goldman Sachs has been the cheerleader for those that say gold is overvalued all year and the broker made all the headlines again on Tuesday when its head of research described the metal as a “slum-dunk sell” going into 2014.
At a conference, Jeffery Currie said that once the once the current debt impasse is sorted out, he expects a strong US economic recovery and the introduction of tapering by the US Federal Reserve to push the gold price down to $1,050/oz.
Ric Deverell at Credit Suisse also said a sell on gold was his top commodity tip for 2014.
Like Currie, Deverell has been consistently gloomy on the prospects for the metal recently, having predicted in May that the gold price was going to be crushed.
Not even confirmation of the nomination of Janet Yellen as the next chairman of the US Federal Reserve provided much relief.
Yellen, a well-respected economist and academic, is seen a keen supporter of the stimulus policies pursued by current Fed chairman Ben Bernanke, but one of the first decisions she may have to make is when to start reining back on the US$85bn bond-buying programme.
Minutes for the last Federal Reserve meeting, released this week, showed that the shock decision not to cut back on the US$85bn per month bond buying programme in September was a close call.
Most of the Federal Open Market Committee believed it would be right to start to taper before the end of the year, which prompted economists to suggest December is still possible for a date when tapering will start.
The loose monetary policies of the Fed and other central banks since the financial crisis of 2008 were seen as a major driver for the gold price reaching a new all-time high in 2011.
This year, however, the recovery in global economies and prospect of the monetary taps being turned off has sent gold down by more than 20%.
Traders said gold has also been hit recently by the absence of the retail buying that had picked up at other times this year when the price was weak and that had helped to fill the gap left by institutional holders selling.
