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Gold Trading Quiet as Price Hits 7-Week High After Fed Minutes, Seen Below $1000 in 2016

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GOLD TRADING in London saw prices hold firm on Friday, recording the highest weekly close at the benchmark LBMA auction in 7 weeks at $1151 per ounce.
World stock markets also rose to 7-week highs in aggregate following Thursday's release of minutes from the US Federal Reserve's September policy meeting, which showed only 1 member out of 10 voting to raise interest rates from 0% as previously hinted and expected.
Trading some 0.9% higher from last Friday afternoon's benchmark, today's auction took only 1 round to find its market clearing price, with the bid volume worth $89.8 million – barely half the July-September average.
Gold trading in Shanghai had earlier risen a little following yesterday's return from the National Day 'Golden Week' holidays. Silver volumes were higher again, touching fresh multi-month highs.
Silver's benchmark price in London – also discovered by electronic auction on behalf of trade body the London Bullion Market Association – today found its highest level since mid-June at $15.99 per ounce.
The LBMA's executive management London today issued a request for information from "potential solution providers" after a strategic review of the City's bullion market – heart of the world's wholesale trading – advised it seek "greater attract greater liquidity [and] to increase efficiency and lower the costs for institutions of doing business."
Latest data from the UK's tax authorities today showed net outflows of 112 tonnes from London's specialist gold bullion vaults in August – the sharpest drop since last November's near 5-year low in prices – as the monthly average in Dollar terms hit fresh 5.5-year lows at $1117 per ounce,
Now totalling 300 tonnes in 2015 so far, gold bullion outflows from London are 50% ahead of the same period last year.
The gold price crash of 2013 saw a net total of 1,439 tonnes of large, 400-ounce bars leave the UK, primarily destined for Asian markets via re-casting into kilobars in Switzerland.
"Looking at 2016," says a new precious metals analysis from French investment and bullion bank Natixis, "we believe the price of gold will continue to be heavily influenced by the Fed’s interest rate decisions."
Despite last month's delay, "Rising interest rates increase the opportunity cost of holding gold," Natixis' analyst Bernard Dahdah goes on, forecasting an average 2016 price of $990 per ounce and saying that "demand from central banks and China are expected to remain weak compared to previous years [while] supply from physically-backed ETPs is expected to continue at a slow pace."
Gold imports to India – to which Natixis says it is one of the largest suppliers – reportedly fell over 50% in September from a surge in August, according toBloomberg News today, retreating towards previous monthly averages at 67 tonnes.


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...Meanwhile, another prediction for Gold going in the other direction...

UBS Sees Gold Averaging $1,250 In 2016; Any Weakness ‘Unlikely To Be Sustained’

Friday October 09, 2015 08:54

(Kitco News) - UBS looks for gold prices to rebound into next year as real interest rates remain subdued compared to past cycles, maintaining its call for the metal to average $1,250 an ounce in 2016.

The bank downwardly revised its 2015 forecast to $1,170 an ounce from $1,190.

Meanwhile, UBS trimmed its 2016 silver forecast, although the bank still looks for price appreciation next year. The bank also sees higher prices for platinum group metals.


“We maintain our core constructive view, expecting gold to stabilize and eventually recover up ahead,” UBS said in an outlook issued Friday. “We think that gold has already done a lot to adjust to the current macro environment and anticipate further changes. We expect any downside from here to be ultimately contained.”

Expectations for higher interest rates have previously hurt gold. However, UBS said, there is potential for real rates to be lower compared to previous cycles and market expectations, which would mean a friendlier environment for gold than what currently appears to be priced into the market.

“Against the backdrop of broader macro uncertainty, light positioning suggests that there may be an opportunity for longer-term investors to rebuild positions,” UBS said. “Despite subdued physical demand this year, we expect core trends to remain stable and provide support during periods of weakness. Supply-side response is lacking, but we think that the market is close to finding equilibrium and considerably lower prices from here are unlikely to be sustained over a prolonged period.”

Meanwhile, UBS downgraded its silver outlook, acknowledging that the bank was “too ambitious” in previous forecasts. Analysts look cut their 2016 silver average price forecast to $17.50 from $20, although this is above current levels. The outlook for the current year was trimmed to $15.90 from $16.90. 

“Broader macro uncertainty and especially concerns about China's growth prospects warrant some scaling back in our price expectations for silver and our forecast trajectory for the gold:silver ratio,” UBS said. “Silver's continued struggle to outperform gold highlights the reluctance of market participants to get involved, against the backdrop of an overall timid attitude towards precious metals this year. Despite resilient ETFs (exchange-traded funds) and relatively healthy physical demand, the absence of interest from investors suggests that silver is likely to continue looking to gold for direction, staying true to its role as a higher-beta version of the yellow metal.”

UBS said it trimmed its forecast for platinum prices in future years by 11% but nevertheless looks for the metal to move higher. The 2016 outlook is for an average $1,100.

Platinum is down 24% for the year to date. Still, UBS sees potential for a supply shortfall in the coming years.   

“The trend in longer-term fundamentals remains intact: a challenging supply environment is augmented
by growth in global auto demand and tightening emissions regulations,” UBS said. “Risks to this view include a faster decline in diesel penetration in Europe and resilience in South African platinum production.”

The bank also remains “constructive” on palladium, forecasting an average of $780 next year. The metal has recovered from an “overdone” correction, further helped by the recent investigation into Volkswagen, UBS said.

UBS said it’s too early to factor assumptions about the VW situation into its longer-term analysis of platinum group metals, and analysts instead “flag it as a risk for now.” Platinum fell on worries that the VW situation would mean less demand for diesel-powered vehicles, which use platinum for catalysts. Meanwhile, the market factored in expectations that more consumers would buy gasoline-powered vehicles, which use palladium, boosting prices of this metal.

...and Gold above $1,156/oz right now.
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