Gold Flat, Silver Jumps as Fed and Physical Demand Back in Focus

By: Adrian_Ash

The PRICE of gold was unmoved Monday morning in London, trading barely 25c higher at $1317.50 per ounce as European stock markets also halted their rise, holding global equities near 5-year highs.

Gold traded in Shanghai today pulled back to $7 per ounce above London benchmarks, with Australian bank ANZ saying trading looked "subdued" as a result.

Imports of silver bullion to China meantime fell 5.5% in September from August to 243 tonnes, new data showed.

That was 13.9% lower from September last year, says Reuters.

With the US debt ceiling resolved until January, says Jonathan Butler at Japanese trading conglomerate Mitsubishi, "Attention [in gold] should return to the strength of the US economy, Fed tapering (now less likely to start this year, in our view) and physical demand.

"On a technical level, last week's moves point to a mildly bullish outlook."

Calling last week's price action in gold "a bullish engulfing pattern," the latest chart analysis from Scotiabank says it offers "an encouraging sign that the bear channel of the past 2 months may be about to turn, though it is still early."

The US Dollar stemmed its response to last week's 3-month fix to the US debt ceiling, finding a floor against the Euro at $1.3675.

US jobs data in the Non-Farm Payrolls report – seen as key for the Federal Reserve's monetary policy – will now be released Tuesday after being delayed by the debt-ceiling shutdown in Washington.

Weekly data on gold and silver positioning in the US futures market remain delayed, meantime, as regulator the CFTC re-opened with other government departments.

Like gold, US debt prices also capped their rise early Monday, holding 10-year US Treasury bond yields at a 9-week low of 2.58%.

That compares to the two-year high of 3.00% reached in mid-September.

"[The debt ceiling deal] may not be clean and neat," Bloomberg today quotes Kit Juckes, global strategist at French investment bank Societe Generale, "but there's still perception out there that Treasuries are risk-free."

"The hard truth for China," says Li Jie, head of foreign reserves research at the Central University of Finance & Economics in Beijing, "is that there's no alternative to US Treasuries."

Despite trimming $95 billion off their total $4 trillion position in US debt since July, foreign central banks know that "whatever happens, undertaking a massive selloff of US bonds is not an option," says Li.

In contrast to gold on Monday, silver rose sharply, adding 1.7% to near 2-week highs at $22.29 per ounce.

Platinum meantime rose to 4-week highs, extending its spread above gold prices to a two-month high of $120 per ounce.

Palladium recorded its best AM London Fix since the end of August.

"We maintain our fairly pessimistic outlook for gold," says a note from US investment bank Morgan Stanley, "as we believe prices have fully factored in a turn in the US interest rate cycle.

"Gold's tepid response to the recent positive events confirms our view that tapering [of the Fed's quantitative easing] has been postponed, not cancelled, and is expected by year-end."

Saying that gold has "run out of steam", analysis from Baclays Capital in London adds that "More worrisome has been the lack of physical demand support amid the seasonally strong period for consumption in India, making the floor for prices fragile."

By Adrian Ash
BullionVault.com

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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

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