Investors 'Perversely' Set to Buy Gold When US Fed Raises Rates, Says Metals Focus, Silver Records 3.9% Gain for Q1 2015

[The Machine]

BUY GOLD bids outweighed offers at the benchmark LBMA Gold Price auction on Tuesday afternoon in London, with that wholesale market clearing at $1187 per ounce to close the first quarter of 2015 some 1.0% down from end-2014.

 

World stock markets followed Shanghai lower after Chinese equities dropped more than 1% from fresh 7-year highs.

 

Major government bond prices rose, edging 10-year US Treasury yields down to 1.94% – markedly below 2015's opening level of 2.13% – while crude oil held 10% below New Year at $48 per barrel.

 

Silver rallied from an earlier slide to $16.45 per ounce in spot trade – almost $1 below Thursday's 5-week high – to clear at $16.60 midday in London.

 

Silver remains the only precious metal to show a gain in 2015 to date, rising 3.9% in US Dollar terms over the first quarter from New Year's Eve.

 

Platinum today traded 6.7% below its end-2014 level in Dollars, and palladium lost 9.0%.

 

"2015 is likely to mark the end of the bear cycle for gold," said Metals Focus director Nikos Kavalis today at the London launch event for the consultancy's new Gold Focus 2015, saying that demand to buy gold looks "broadly balanced" with those fundamental factors weighing against the metal.

 

Forecasting a Dollar gold price low of $1080 per ounce in the third quarter, with an annual high of $1270, "Perversely, we expect the announcement of US rate rises to be positive for gold prices," he told his audience in the City today.

 

Traders selling gold short in anticipation of the first rate hike "will unwind their positions," Kavalis said, and "longs may be tempted back in" as the realization grows that – thanks to the United States' huge household debt levels meaning increased servicing costs would badly hurt consumer spending – the Fed cannot raise rates very high.

 

Central-bank gold buying looks "quite supportive" Kavalis went on, while the outlook for supply is "relatively benign", with the decade-long rise in mining output now finished and scrap flows of second-hand metal depressed by lower prices.

 

Reviewing Metal Focus's 2014 data, "The biggest surprise is how modest the decline in Chinese demand was from 2013's record," Kavalis went on.

 

But household demand in India – traditionally the world's No.1 consumer market – was tempered by the 30% surge in Mumbai's stock market after May's victory by Narendra Modi's BJP, elected on a pro-business platform.

 

India's private demand to buy gold coins and investment bars fell 39% in 2014 according to data in Metal Focus's new 88-page yearbook, reaching the "lowest level since the start of the decade."