Gold Fights Back Against Fed Rumours

Overnight gold climbed its most in the last week as its recent three-day decline attracted investors looking for a bargain. Support was found thanks to the weaker dollar but was unaided by ETF outflows.

Holding It Back
Many believe that until an end comes to the ongoing ETF liquidation, gold will not sustain further gains. Holdings in the SPDR Gold Trust, yesterday stood at their lowest level since March 2009.

Data from China yesterday was ‘weaker’ than expected. This was bearish for the precious metals, however when the data is put in the context of ‘positive’ data from other major economies, you can hardly call China’s economic releases ‘weak’. For instance, analysts had expected a 9.5% increase in industrial production, it came in at 9.3%.

Silver made some gains yesterday, futures for July delivery rose 0.2%, barely a scratch on the 22% fall since the beginning of the year.

India Demand Outshines All
Data released in India suggests gold imports to the country will surge 47%, to 225 tons, in the three months to June. A perfect storm of low prices and the Akshaya Tritiya festival has seen sales increase to more than 20% than this time last year. Hindus celebrating the festival (there are 900 million) are said to believe that any gold bought on the day will triple in value.

Yesterday the Reserve Bank of India said it would ‘restrict imports on consignment basis by banks only to those required to meet the ‘genuine’ needs of jewellery exporters’ reports Bloomberg. This is effective immediately. Gold imports are 138% higher than a year ago.

Scrap Gold Shortages
Data from TD Securities shows the used gold supply for 2013, will be at low levels not seen since 2008. This is believed to because of gold’s low price, fewer people are selling their old jewellery. Refiners are expected to handle about 4% less used gold than they did in 2012.

Those retailers who buy used gold are now loathed to sell on the gold that they bought at a higher price. Many are sitting on the gold in the hope that it will go up. Expect to see more scrap metal return to the market once prices stabilize.

Unfortunately paper gold continues to dwarf both the physical gold buying and scrap gold buying markets, therefore activities in either of these are unlikely to affect the gold price.

Gold Reacts To Fed Rumours
Gold’s latest fall comes amidst rumours, which started on Friday, that Fed officials have developed a strategy to pull in the $85 billion a month bond-purchases. The story, published in the Wall Street Journal, did not place a time-frame on when and how this would be gone about. Also remember than there have been no indications of such a plan in any Fed minutes or from any Fed officials, such as Bernanke.

The article, written by Jon Hislenrath, interviewed Dallas Fed President Richard Fisher and Philadelphia Fed president Charles Plosser. Fisher told Hislenrath that he would rather see QE dialled back rather than going from ‘wild turkey to cold turkey.’ Acknowledging what a drug QE is to the market.

The article discussed the need of the Fed to prepare the market for any decisions it may make, it won’t want to surprise investors by suddenly stopping QE unexpectedly. Jeffrey Nichols, quoted by Kitco, believes more negative data from the US economy is to be expected and so believes the Fed will dial up, rather than dial down, the amount of bond-buying.

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