Gold Market Has Seen Paradigm Shift in Investor Attitudes
GOLD drifted to a one-week low below $1380 an ounce Tuesday morning, as silver dipped below $21.80 an ounce, with stocks and commodities broadly flat on the day ahead of tomorrow’s US Federal Reserve decision, with analysts speculating on whether the Fed will give details of when and how it might slow down its quantitative easing program.
“The outlook for the gold price remains negative from a technical perspective,” says Karen Jones, head of FICC technical analysis at Commerzbank.
“Following the mid-April plunge, the market has consolidated tightly sideways in a converging range. We are viewing this as a potential symmetrical triangle. A close below $1352 will complete the pattern and trigger another leg lower we suspect.”
“We believe that the dramatic gold sell-off in April,” adds a note from Societe Generale, “combined with the prospect of the Fed starting to taper its QE program before year-end, has resulted in a paradigm shift in many investors’ attitude towards gold. This is likely to result in continued large-scale gold ETF selling this year and next.”
The SPDR Gold Trust (ticker: GLD), the world’s largest gold exchange traded fund (ETF), has seen outflows this year amounting to a quarter of the gold it held to back its shares at the start of January.
In Washington, the Federal Open Market Committee begins its latest two-day monetary policy meeting today, with a decision due tomorrow.
“[There is] much speculation as to whether [the FOMC] will detail an exit strategy [from QE],” says a note from Dutch bank ING.
“While there are views that the Fed will want to see bond yields lower, or certainly highlight that policy rates will not be raised for a significant period, we see merit in the view that transparency is the best policy choice – and it is time to more formally outline the normalization process.”
ING also argues that Fed policy uncertainty “has seen soaring volatility destroy the carry trade”, whereby investors could borrow cheaply in Dollars to invest in emerging market assets.
Fed chairman Ben Bernanke meantime has stayed in his job “longer than he wanted” and has “done an outstanding job”, according to US president Barack Obama, speaking in an interview broadcast Monday.
Over in the UK, consumer price inflation rose to 2.7% last month, up from 2.4% a month earlier, figures published Tuesday show. Mervyn King steps down as Bank of England governor at the end of this month. For the 120 months of his tenure, inflation has been above the Bank’s target in 84 of them.
Over in India, the world’s biggest gold buying nation, the authorities “are not at the end of our wits as far as gold imports are concerned,” economic affairs secretary Arvind Mayaram said Monday.
“If required, there are other measures that can be taken and they will be considered at the appropriate time.”
India has raised import duties on gold twice this year – taking them to 8% – and has also restricted imports of gold on a credit basis to only those who will re-export it. Gold and silver was India’s second biggest import item last year and has been cited as a major contributor to the country’s current account deficit.
Over in China, the world’s largest stock market-listed jewelry chain Chow Tai Fook today reported a 13% drop in profits for the year to March, a filing with Hong Kong’s stock exchange shows. The company cited “declining confidence of domestic consumers” as a factor behind the fall in profits.
Sales of silver bullion American Eagle coins by the US Mint meantime are set to record their best first-half-of-a year since at least 1986 – the year from which US Mint sales data start – with over 24 million ounces sold so far this year.
CME Group’s new 1000 ounce silver futures contract saw 25 lots of the September contract traded in its first day of trading yesterday, with 5 lots of the December contract traded. By comparison, volume for the standard 5000 contract was 11,028.