Gold And Silver Reel Up From ‘Shock’

Gold has faltered from its upward streak following from the Fed’s ‘surprise’ decision but still looks set to finish with its biggest weekly climb in five weeks. Today may, however, see some profit taking.

The gold price did snap last night after data released yesterday showed August sales of previously owned US homes rose unexpectedly. Futures for December delivery on Comex fell 0.5%, silver for immediate delivery fell by 0.5% also. Silver is set to finish the week with its biggest weekly gain since last month.

While Bernanke stated that tapering may still go ahead, gold is still expected to rise before the head of the year going above $1400 and beyond. While gold appeared to have priced in tapering ahead of the September announcement, it is unlikely to do the same ahead of the next meeting thanks to other economic issues on the horizon.

The Treasury continues to warn of that the US will run out of borrowing options next month placing it at risk of default. Markets will be looking out for another downgrade of US debt by Standard & Poor’s (as happened in 2011). Should this happen it will likely provide a short-term boost to gold.

Markets will be looking toward the debt ceiling debate as well growing areas of concern such as the euro zone. There are also bullish factors on the horizon such as India and China’s key festival seasons.

Indian officials are set to meet today to discuss the two-month impasse on gold imports. The 80/20 rule on imports has seen a virtual freeze on gold inflows, crippling the jewellery industry and pushing up domestic gold prices. The latter made worse by the weakening rupee.

Unsurprisingly various surveys of analysts by the mainstream, have found that they are at their most bullish in three weeks. This sudden affection for gold comes after the Fed’s ‘surprise’ decision on Wednesday. This in itself suggests that the analysts surveyed do not understand what really drives people to own gold bullion. It seems the treatment of gold as yet another commodity is destined to continue.

Data from the US Mint shows there was a slowdown in coin demand in August. Just 11,500 ounces of American Eagle gold coins were sold last month, the lowest in six years. The number is significantly down from the 205,000 sold in April.

Societe Generale have not followed Goldman’s knee-jerk reaction in terms of gold price predictions. The former have instead stuck with their bearish outlook for gold, predicting an average Q4 gold price of $1,225.