A week in gold: US Fed halts good run
New York (Feb 1) Gold’s good run since the New Year faltered as the US Federal Reserve confirmed a further US$10bn cut to its monthly bond buying programme.
While that still means US$65bn is being pumped into the US economy every month, it was the second cut in a row and something that suggests a determination by the US central bank now to rein back its monetary stimulus measures, traders said.
Gold has been a beneficiary of the money printing undertaken by the US Fed and other central banks since the financial crash of 2008 as interest rates fell and investors looked for safe havens while the global economy struggled.
But as the US economy has recovered, equity and other assets have proved more appealing sending the gold price 28% lower in 2013 before recovering a little this year so far.
The Fed’s taper this week also coincided with demand from China drying up after a boost in the run-up to the New Year celebrations.
Gold is a traditional New Year’s gift in China as it is seen as bringing good luck. Markets there are now shut until 6 February, which will take away a key recent support said ANZ Bank.
"Near-term, gold fundamentals look bearish, as Chinese demand is sidelined for the next few weeks with the New Year holiday," analysts said in a note.
"Absent a further escalation in emerging market jitters, we expect prices to retest recent lows, potentially falling below $1,230 an ounce."
The boost earlier in the week sparked by currency devaluations in Argentina, Turkey and emerging markets also faded though seasoned hands said it served as a reminder of why gold and silver always should be part of a portfolio.
Jeffery Christian, the founder of commodities consultant CMP, said that during the Asian currency crisis of 1997, those who had gold did very well.
"People understand that to have gold and silver in a portfolio is a hedge to this kind of chaos," he told Kitco.
Christian also had a more bullish view on the prospects for gold in the short term, suggesting there is scope for the price to rise to US$1,320 by the end of March or earlier if there is a sustained burst of covering of short positions.
One thing that is yet to occur following last year’s drop in the gold price is for the miners themselves to start selling forward in substantial quantities again.
"At the end of September, the outstanding global hedge book was 2.94mln oz, the lowest since our quarterly series began in 2002," said a report compiled by Societe Generale and Thomson Reuters GFMS.
The report said the miners are focused on cutting costs and preserving cash at present through reduced capital expenditure, wage freezes, cutting overheads and trying to boost throughput and use higher grade ore.
The report added if the gold price fell further the urge to hedge will grow. It forecast a return to net hedging forecast for this year, rising more steeply in 2015 and 2016.
Spot gold stood at $1,243 an ounce as US trading started on Friday, about $24 lower than last week.
