(Kitco News) – Gold traders next week will look ahead to Chinese data for evidence of a further slowdown in economic activity and traders are hoping for more clarity on the Federal Reserve’s plan for ending its bond-buying program. Gold prices ended the week on a strong note, although they were down Friday. August gold futures fell Friday, settling at $1,277.60 an ounce on the Comex division of the New York Mercantile Exchange, up 5.4% on the week. September silver fell Friday, settling at $19.792 an ounce, but rose 5.6% on the week. In the Kitco News Gold Survey, out of 36 participants, 25 responded this week. Of those 25 participants, 12 see prices up, while seven see prices down and six see prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts. Profit taking after strong gains this week for gold weighed on prices Friday as the U.S. dollar rebounded from Thursday’s weakness. Strength in the dollar has pressured gold as the traditional relationship between the two resumes. Because gold is dollar-denominated, a stronger greenback usually means weaker gold, and vice versa. Market watchers said they are looking ahead to two events: the release of Chinese economic data this weekend and testimony from Federal Reserve Chairman Ben Bernanke in front of Congress next week. The Chinese economic data set for release include second-quarter gross domestic product, June retail sales and industrial production. A few market watchers said that they expect China’s GDP growth to slow further in the second quarter based on tighter monetary policy, citing comments overnight from Chinese Finance Minister Lou Jiwei. He suggested that 2013 growth may be as low as 6.5%, falling short of the official government target set in March of 7.5%. Bernanke will address members of the U.S. House of Representatives and Senate on Wednesday and Thursday, as part of the Fed’ semi-annual report regarding policy. Analysts said his comments will be closely watched, particularly after this week’s release of the June Federal Open Market Committee meeting minutes and Bernanke’s comments suggesting “highly accommodative monetary policy for the foreseeable future” during a separate speech. Gold and other markets rallied on Bernanke’s words and the U.S. dollar fell, changing some traders’ views that the tapering of the bond-buying by the Fed could come as soon as the September FOMC meeting. Some market watchers said Bernanke’s comments, in contrast to what he said after the June FOMC meeting, and the meeting minutes may have injected a little more confusion into the markets about what the Fed plans to do. Analysts at BNP Paribas said to keep in mind when Bernanke testifies in front of Congress he will represent the FOMC, rather than giving his own views. That might mean he will sound less dovish than he did earlier this week and his comments may err on the side of tapering, they said. If that’s the case, the U.S. dollar might rebound, which would reassert pressure on gold. Barclays analysts said Bernanke’s comments were dovish, but that “we see them as consistent with our view that the Fed will reduce the pace of purchases at its September meeting from $85 billion per month to $70 billion… We interpret many of the chairman’s dovish statements as an attempt to prevent markets from pricing in an earlier onset of policy rate tightening, not about whether the committee expects tapering later this year.” Adrian Day, president and chief executive officer, said gold traders are reassessing the knee-jerk reaction to the Fed’s plans. He said he expects gold to rise next week, albeit cautiously. The selloff that took gold under $1,300 “is overdone based on (the notion that the) Fed cutting back stimulus. All the Fed is discussing at present is reducing the additional stimulus… This is not reducing anything, far less a grand exit. As the market realizes this, gold will recover, unevenly perhaps, but the trend is up,” he said. While Day forecast higher prices, a number of market watchers said after such a strong rally this week, gold prices could pull back and consolidate in a range. Several said they expect gold could find support around the $1,265 to $1,270 area, with resistance at the $1,305 area. “Much will depend on the nature of the Chi­nese macro numbers out this weekend. If the numbers turn out to be particularly poor, there is talk that the government may announce a lowering of reserve requirements or a targeted stimulus program, in which case gold prices could con­tinue pushing higher. However, if the numbers are weak and are not accompanied by any kind of government relief, prices could start to work lower over the early part of next week. For now, we would rather be on the sidelines and watch where things settle in light of these key macro announcements,” said Edward Meir, commodities consultant at INTL FCStone. Follow me on Twitter! If you want to keep up with metals news and features, then follow me on Twitter. It’s free, too. My account is @dcarlsonkitco By Debbie Carlson dcarlson@kitco.com

WHOLESALE prices for gold rose 1.1% in Asian and London trade Wednesday morning, nearing yesterday’s 1-week highs at $1260 per ounce as the rate for leasing and borrowing gold rose further.


Silver prices rose 1.8% from an overnight low at $19.05 per ounce.


Equity markets slipped while commodities rose with major government bond prices, nudging 10-year US Treasury yields further back from Monday’s 2.73% – their highest level since August 2011.


Interest rates on weaker Eurozone debt rose, however, after ratings agency S&P cut Italy’s long-term credit to BBB, just two notches above “junk” status.


“There has been some [gold] borrowing interest recently,” the FT quotes Swiss bank UBS’s precious metals strategist Joni Teves.


“It’s related to the demand for physical,” with premiums in Shanghai continuing to hold $40 per ounce above London’s benchmark.


“As wholesalers, refiners and retailers of investment products are scouring for the metal to make physical products,” agrees consultancy CPM Group’s head Jeffrey Christian, speaking to Reuters, “some of them are actually borrowing the gold in advance.”


After falling into negative territory for the first time in 5 years on Monday, the forward rate offered by London bullion banks fell further to -0.12% on 1-month swaps today.


The offered rate is paid to borrowers who are willing to swap cash for gold bullion, and so bear the cost of storage and lost interest payments for the period of the swap.


Data from trade association the London Bullion Market Association show gold offered rates were last negative – meaning that gold owners are demanding payment, rather than offering it – in November 2008, after the collapse of Lehman Brothers.


One-month rates have only been negative on 12 trading days in the LBMA’s twenty-four year records.


The most negative rate – meaning the highest rate demanded by large gold owners – came at -4.53% in September 1999, when European central banks agreed to cap their annual gold sales. A sharp jump in gold prices forced a scramble amongst gold mining companies who, after a near two-decade bear market, had borrowed and sold gold for fear of further price drops.


The rising price and cost of borrowing gold led to the near-bankruptcy of Ghana miner Ashanti.


“[The negative rate] is important news,” says refining and finance group MKS’s daily note.


“It has piqued people’s interest” in buying gold to profit from a squeeze on bearish traders, the FT quotes a senior bullion banker, with the turnaround in the gold borrowing rate helping support prices after the worst quarterly drop in three decades.


Barring a spike in May this year, the overall return to large gold owners for offering metal for a 1-month swap and earning the interbank interest rate on the cash received hit its best level since February 2009 at 0.30% annualized.


Meantime in Asia on Wednesday, gold retailers in India – the world’s No.1 consumer market – agreed Wednesday to suspend further sales of gold coins and investment bars, meeting a government plea for help in reducing gold bullion imports.


The All India Gems & Jewellery Trade Federation, which this week proposed a gold-deposit banking scheme to “mobilize” existing households stockpiles and so reduce gold imports, said more than two-in-three of its 40,000 members have agreed to the ban.


Physical gold demand from wholesalers in China, the world’s No.2 consumer, was strong overnight according to dealers.


Looking at recent weak economic data from China, “A hard landing could shake faith in the government,” says a note on gold investing from Barclays Research, and lead to a big fall in Yuan-denominated assets.


“[That] could mean gold becomes important for domestic investors to hedge what they may view as a greater set of risks than previously,” reckons Barclays commodities analyst Sudakshina Unnikrishnan.

Adrian Ash



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