247Bull.com Editor: Ben Bernanke doubtless chose his words very carefully yesterday when he spoke of “tapering” QE. It is highly likely that it was his intention to talk the market down in order to let some of the heat out of it. The reality is, subjective economic indicators such as consumer sentiment aside, the US economy is still in poor health and absolutely requires ongoing stimulus.
Both gold and silver rose in Asian and London trade Thursday morning, defying a sharp slide in global stock markets to gain 3.0% rally from yesterday’s sharp sell-off.
Commodity prices fell as major government bonds rose but weaker Eurozone debt slipped, pushing interest rates higher.
Tokyo’s Nikkei index – up by 85% from November – dumped more than 7% after new data showed a surprise contraction in China’s manufacturing sector.
Private “retail” investors have “abducted” the Japanese stock market, accounting for more than a third of recent volume, according to brokers quoted by the Financial Times.
“[Gold's] inability to hold the highs is bearish,” says the latest technical chart analysis from Scotia Mocatta.
“[Wednesday's] intra-day rally is indicative of bargain hunting in gold rather than a change in trend,” the bullion bank adds, pegging support at the April 2013 low of $1323.
Like Barclays Capital’s analysts, Scotia now puts short-term resistance at yesterday’s sudden spike of $1412.
Gold prices rose Thursday morning to breach $1390 per ounce once again, recovering two-thirds of Wednesday’s plunge from that 1-week high – made as US Federal Reserve chairman Ben Bernanke was testifying to the Senate on the likely direction of Dollar interest rates and quantitative easing.
Having warned against “a premature tightening of monetary policy” however, Bernanke was then asked if the Fed might start reducing its $85 billion in monthly QE purchases of government debt and mortgage bonds before Labor Day on Sept. 1st.
“I don’t know,” Bernanke replied.
Minutes from the US central bank’s latest policy meeting also showed one participant wanting to reduce the level of QE “immediately”.
“Not having the future support of the Fed,” says Edward Meir’s note for INTL FC Stone, “will remove a major prop for gold.”
“It seems the market is now squarely focusing on the September 17-18 [policy] meeting for the Fed to make its move,” reckons ING bank’s analysts.
“Together with expectations of tightening quantitative easing,” says Mitsubishi analyst Jonathan Butler – also quoted by Reuters – “the general trend for a modest economic recovery in the developed markets is going to fuel growth in the equity markets and the Dollar.
“That should see gold coming under pressure.”
“The momentum is strongly negative,” says Edward Lashinski, global strategist at RBC Capital Markets in Chicago.
“The market understands that gold is no longer a safe haven.”
On the supply side meantime, “Being more profitable is better than being bigger,” said Jamie Sokalsky, CEO of the world’s largest gold miner, Barrick, at Bloomberg’s Canada Economic Summit in Toronto on Tuesday.
Also forecasting new record highs for the gold price thanks to central-bank demand and the state of the global economy, Sokalsky mooted “divesting” some smaller, higher-cost mines to focus on more efficient projects.
In particular, the giant Pascua-Lama project in Chile – valued at some $8.5 billion, and already eating some $5bn in costs – has been delayed by environmental concerns, says Canada’s Financial Post.
“Barrick is considering all its options at Pascua-Lama,” says the paper, “including outright suspension.”
At current gold prices around 10% of gold mines globally will be making losses, according to Thomson Reuters GFMS data.
“We would initially expect the oldest mines closing,” says a special report from Japanese trading house Mitsui’s metals strategist David Jollie in London, “as they are in many cases coming to the end of their operating life.”
Gold mining companies are likely to avoid closing newer projects “as long as possible,” Jollie says. But if the gold price stays low enough long enough, “closures will happen.”
Adrian Ash | BullionVault