Daily Nugget: Gold Prive Hovers Near 5-Month Low

The gold price hovered above Monday’s (near) five-month low yesterday, pressure came from the better than expected US home sales and building permits data. The data added further weight to the argument that the Fed will taper sooner rather than later.

Further gold price downgrades

Yesterday UBS downgraded their short-term gold-price targets to $1,180 for the next month, to $1,100 for three months.

This forecast was based on the following reasons:

- Given gold’s inability to rise despite recent US dollar weakness, sentiment is weaker than expected. It no longer reacts in the manner to US and EU announcements as it once did e.g. the US government shutdown.

- A significant amount of focus is being placed on Fed tapering, by market participants.

- Physical buying (in places other than China) remains subdued. Whilst many investors rushed in to embrace low prices in April and June, this trend has not continued.

China’s record gold imports

Speaking of physical buying, gold shipments from Hong Kong to China in October rose to the second-highest on record in October. Net imports were 129.9 metric tons last month, up from 190.4 tons in September. Jewellers and retailers are stocking up ahead of the key peak-demand at the end of the year.

London gold fix – is it needed?

A Bloomberg article on the London gold fix, published yesterday has drawn much attention to the debate surrounding the necessity of the time-old price fixing function. Jeffrey Nichols has asked if the ongoing evolution of markets could lead to the price fix losing its significance. “The world of gold, like the global economy, is in a state of change where the traditional powerhouse, which are in New York and London and maybe Zurich, are losing ground to emerging markets.”

The London gold fix certainly appears both opaque and old-fashioned. It is set by a mere handful of banks, twice a day, despite the price moving substantially in a market with a wide range of participants. Once the gold fix was a point of reference, to a large extent it is still seen as a point of price discovery (see our previous work) however its relevancy does appear to be waning somewhat as the number or participants and gold market locations increases.

Dr Paul fearful of Janet Yellen

Yesterday Kitco interviewed former US Congressman Dr Ron Paul. The former Republican presidential candidate expressed his fears about ‘very aggressive inflator’ Janet Yellen. Despite gold’s lack of action in the face of ongoing monetary stimulus, Dr Paul insists that investors should not be worrying about the price but instead they should ask ‘Do I have enough ounces to take care my needs or my family’s?’

Dr Paul views the current price correction as ‘a good buying opportunity…They cannot print this kind of money and think that it will never be discounted by the dollar price of gold and I think we are fast approaching the time where it will turn around.’

US gold mine production

As the price of gold continues to disappoint, many are beginning to look at mining costs and what they will mean for future levels of gold mining. So far this has not been an issue faced by the US gold mining industry: last month US gold mine output climbed by 6% from a year earlier.