Gold Bullion 'Looks for Respite' After 'Finding Support' at 6-Year Low Ahead of Fed Rate Decision

[The Machine]

 

 

GOLD BULLION lost a brief $6 pop in mid-afternoon trade Friday in London, heading for a 0.6% weekly drop but holding above yesterday's new 69-month low of $1174 per ounce.

 

After various Federal Reserve policymakers said overnight they're minded to raise Dollar interest rates from 0% for the first time since 2008 at the December meeting, new data today showed US retail sales and producer prices both weaker than analysts forecast.

 

Consumer confidence has risen sharply in November however on the Reuters/Michigan survey, reaching its best level since June.

 

US bond prices rose again Friday, nudging market interest rates, as Western stock markets fell once more.

 

Crude oil fell to the lowest price since August's 6-year trough beneath $40 per barrel after Thursday's data showed US stockpiles surging to a record quantity.

 

"Gold will be targeting $1090 and $1095 on the top-side," says the Asian trading desk at Swiss bullion refining and finance group MKS, "as the metal looks for some respite following the recent weakness.

 

Yesterday's low – variously put by spot-price charts around $1072-74 – "is a major support," MKS adds, "and any breach of this level sees $1050 as a real possibility."

 

"The metal's brief piercing below [July's $1177 low] suggests this support has temporarily stopped the fall," reckons Reuters technical analyst Wang Tao, adding that "a bounce could be due."

 

Further ahead, "Increased volatility and price swings with lower liquidity into the year-end...could propel gold back above $ 1110," says a bullion-bank sales desk in a note.

 

While it can't "rule out more gold weakness" going into the US Fed's December decision, "it seems the market is already massively positioned [and] a rate hike will see short-covering profit-taking."

 

Major Hong Kong jewelry retailer Luk Fook (HKG:0590) yesterday joined Chow Tai Fook (HKG:1929) – the world's largest jewelry outlet chain – in warning that profits fallen sharply over the last 6 months, perhaps by 40%, thanks to a drop in sales and margins.

 

Beijing's new official target growth rate for GDP, plus the end of China's "one child policy" for families, "should have a positive impact on the country's demand for gold and silver," says analysis from metals specialists Thomson Reuters GFMS, "if these measures are implemented and executed successfully."

 

However in India – the world's heaviest gold consumer market in Q3 according to new data this week from market-development organization the World Gold Council – the peak demand festival of "Diwali is over," notes an email from investment and bullion bank ICBC Standard Bank, "and Indian dealers will not be in a hurry to restock looking at a chart of gold [trading 6% above the summer's 4-year lows] in Rupees."

 

Favored by US fund managers meantime, the number of gold-backed shares issued in the SPDR Gold Trust (NYSEArca:GLD) – the world's largest exchange-traded product by value at gold's peak in summer 2011 – yesterday shrank to a new 7-year low, taking the bullion needed to underwrite the fund down beneath 662 tonnes from the end-2012 peak by weight of 1353.

 

Shrinking for the 11th session in 3 weeks, the GLD has now seen the longest run of outflows since November last year.

 

Silver holdings, in contrast, rose at the iShares Silver Trust (NYSEArca:SLV) on Thursday, adding metal to back the fund's exchange-trade shares for the first time in a month to 9,801 tonnes – a near 3-year low when first reached in October.

 

Silver prices Friday touched a new 11-week low, just 20 cents above late-August's 6-year low of $14.00 per ounce.