Daily Nugget: Is It Dectaper Time?

2013 has been a year when markets have been hyper-sensitive to Fed comments in the hope that they will provide some indication over future moves. Today will be the last opportunity this year for markets and speculators to try and understand what can be seen in the Fed statement. All year there have been expectations that tapering will happen before Christmas, however this is looking increasingly unlikely.

Polls carried out by both Bloomberg and Reuters show the majority of respondents do not expect Dectaper to go ahead, but some still believe there is a slim chance that Bernanke may go crazy in his last meeting and decide to reduce stimulus. One of those who believes Dectaper is more likely than not to go ahead is PIMCO’s Mohamed El-Erian, who told Bloomberg’s ‘In The Loop’ that he sees a 60% chance of it happening.

Should tapering go ahead we only expect gold to fall by a small amount, suggest $30-$60. As has been evident in recent months, the yellow metal has had tapering priced in for some time.

If, as is likely, tapering does not go ahead then the all eyes will be on the March meeting as the next realistic opportunity for a reduction in easing to be announced.

Yesterday gold lost gains made in earlier sessions, experiencing a small sell-off on COMEX. However all four precious metals are up this morning, ahead of the FOMC’s announcement at 7pm GMT today.

Wildcard for gold price action

A wildcard for short-term gold price action is the number of short-positions held by managed money. Data from the CFTC shows the number of short-positions held is close to the 7 year high reached a couple of weeks ago. Whilst holding short-positions may seem bearish for the yellow metal (effectively a bet that prices will fall) this could work in gold’s favour should it react positively to the FOMC announcement and traders are forced to cover their positions before year-end.

Which is the true example of gold demand?

On trend with the rest of the month, outflows from the world’s largest gold ETF, SPDR gold trust, continued. Holdings fell by 2.08 tonnes yesterday. At 816.82, holdings are now at their lowest since January 2009.

China, always the best indicator of true gold demand, saw volumes for the highest purity gold contract climb from eight tonnes yesterday to 13 today.

Australia gold production to fall

As we have been reporting in recent weeks December means a time for forecasts. The latest forecast comes courtesy of the Australian government. The Canberra-based Bureau of Resources and Energy Economics said in a report yesterday that gold price will average $1,220 in 2014. Whilst global mine production is expected to increase by around 75 metric tons, this will not be reflected in Australia where production is expected to decline by 3%.

Global commodity asset falls

A report from Barclays Capital showed yesterday that total global commodity asset values fell by a record $88 billion to $332 billion between January and November this year. The fall was mainly attributed to price falls and investors choosing to no longer hold gold related products.

The true cost of gold controls

Mineweb this morning reports on the impact India’s gold controls are having on the jewellery industry. It is a tale of unemployment and a struggle made harder by its seeming endless. One example is of a Mumbai bullion retailer who previous to the gold controls received orders of around 200g per day. Today it is more likely to be 25-30g per day.