“Investors on the Sidelines” as Gold, Silver End “Week of Nothingness” Flat

WHOLESALE gold bullion prices continued to hover near $1380 an ounce Friday, while silver traded either side of $21.80 an ounce and stocks and commodities ticked higher, regaining some of the ground lost this week. Heading into the weekend, gold was trading almost exactly where it started the week by Friday lunchtime in London, with silver also little changed.

“It has been a week of nothingness and I doubt today will be a lot different,” says this morning’s bullion note from brokerage Marex Spectron. “Continue to watch the Dollar for direction and with a few [economic] figures, albeit not particularly big ones, out this afternoon, that should be good for a few silly Friday afternoon moves.”

A survey of 36 gold market analysts by news agency Bloomberg found half of them expect gold prices to fall next week, with 14 saying they expect gold to go up and four saying they were neutral.

“Sentiment is very bleak,” says VTB Capital commodity strategist Andrey Kryuchenkov.

“Investors are basically on the sidelines. They don’t want to do anything and are still spooked.”

“The downtrend that we see in the gold price is likely to continue,” adds Dominic Schnider, head of commodity research at UBS Wealth Management Research.

The world’s biggest gold exchange traded fund SPDR Gold Trust (ticker: GLD) meantime saw outflows of 6.3 tonnes yesterday, taking total bullion holdings to back its shares to its lowest level since February 2009.

US Federal Reserve policymakers meeting next week will seek to convince investors that they will move slowly in unwinding the Fed’s stimulus measures such as its quantitative easing bond-buying program and record low interest rates, according to the Wall Street Journal’s Jon Hilsenrath, dubbed ‘Fedwire’ by some fellow journalists owing to his perceived closeness to sources at the central bank.

“The chatter about pulling back the bond program has pushed up a wide range of interest rates and appears to have investors second-guessing the Fed’s broader commitment to keeping rates low,” Hilsenrath writes.

“This is exactly what the Fed doesn’t want.”

Hilsenrath predicts that Fed chair Ben Bernanke will reiterate his message that there will be a “considerable” lag between the end of QE and the raising of benchmark interest rates.

“We are not sure if the two stances are mutually exclusive,” says INTL FCStone metals analyst Ed Meir.

“Even if the Fed pares its buying program on the long[er term] end, there will be pressure on short-term rates to rise as well, meaning that the Fed could easily get sucked into intervening once again.”

Over in China, the world’s second-biggest gold buying nation, the government failed to sell all its bonds at an auction Friday, the first time this has happened in nearly two years.

“Tight liquidity is the main cause for the ministry’s failure to complete the bond sale today,” a senior trader at China Gunagfa Bank tells the Wall Street Journal.

“The high funding cost in the interbank market has made such investments even less popular.”

“If liquidity is so tight that it is even difficult for government to raise funds, it’ll be even more difficult for local governments and highly leveraged companies,” adds Nomura economist Zhang Zhiwei. China’s central bank, the People’s Bank of China, has refrained from large-scale injections of cash into the markets in recent weeks, a move that it has used at times of market stress in the past in order to ease liquidity constraints.

“Now the market believes the PBOC is unlikely to change its recent hardline stance,” one senior trader at a Chinese state-owned bank tells newswire Reuters, “at least for the third quarter.”

The United States meantime has said it will give military aid to rebels in Syria and is considering enforcing a no-fly zone, after US intelligence confirmed to the Obama administration that Syrian government forces have used chemical weapons

Ben Traynor




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The Art&Science of Trading Gold
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