247Bull.com Editor: Gold in US dollars (and British pounds) is in a cyclical bear market within the context of a larger secular bull market. The continuation of the long-term uptrend largely depends on one question. Can the US economy really stand on its own two feet without massive government support in the form of QE? Our view continues to be that it cannot. Absent deficit spending the US would be mired in the worst recession/ depression since the 1930’s, and the same is true for Britain. As a result QE will continue for the foreseeable future, and if/ when this new money begins to find its way into the economy the result will be much higher inflation rates and a resumption of the bull market in gold (and silver).
The gold price rallied from a 1-week low at $1376 per ounce Monday morning in London, edging back up to $1383 as world stock markets rose.
Silver fell within 20¢ of mid-May’s 30-month low, before rallying to $21.80 per ounce.
Commodity prices fell after weaker-than-expected Chinese industrial data. US Treasury bonds also slipped in price once again, nudging interest rates on 10-year debt up to 2.17%.
The gold price “conclusively broke back down through $1400 and stayed there” following Friday’s release of US Non-Farm Payrolls data for May, says the latest daily note from brokers Marex Spectron.
But “the market is well ahead of itself in thinking the Fed will soon pare back on their stimulus,” reckons Danske Bank’s head of fixed-income trading Soeren Moerch, pointing to the slight uptick in the US jobless rate shown in Friday’s official data.
Now at 7.6%, the unemployment rate is well above the 6.5% level previously named by US Federal Reserve chairman Ben Bernanke as key to any review of target interest rates.
“The latest employment news,” says one gold price analyst, “supports our view that the [US Federal Reserve's] asset purchase programme will not start to ‘taper’ until the latter part of this year.”
But Fed officials “are likely to signal at their June policy meeting that they’re on track to begin pulling back their $85-billion-a-month bond-buying program,” writes the Wall Street Journal‘s Jon Hilsenrath – dubbed “Fed wire” for his apparent connections to the US central bank.
“The recent recovery [in the gold price] is over,” Bloomberg today quotes Richard Adcock, technical strategist at London bullion market-maker UBS.
“The next leg of the bear trend is to be seen down to the long-term 50% retracement point at $1303, which we would set as our objective.”
Other analysts point to a trading range with either $1360 or $1375 at the bottom, with a move above $1420 needed “in order to escape the downward trend” according to German refining group Heraeus in a note.
Even before Friday’s jobs data, “News out of India had already weighed on gold,” says Heraeus.
Last week’s import duty rise from 6% to 8% for gold going into India – the world’s No.1 gold-buying nation – in will cut foreign-currency outflows and so help reduce the country’s current account deficit, spokesmen for the Finance Ministry said at the weekend.
“The prospect of lower inflation and [lower] gold imports [is] good news for the Rupee,” agrees Singapore fund manager Samir Arora of Helios Capital.
The Indian Rupee today fell to new all-time lows at worse than 58 per Dollar.
“I think this is panic in the market which is unwarranted,” economic affairs secretary Arvind Mayaram told journalists Monday, pointing to concerns that tighter US policy would hurt investment flows to India.
“[The Fed] have now more than clarified that this [tapering of QE] is not imminent. Neither is it something which will happen quickly.”
“What’s happening today is not India-specific,” says J.P.Morgan’s chief India economist, Sajjid Chinoy, quoted by the Financial Times.
“Emerging markets are bleeding [money] across the board.”
Speculative traders in US futures and options meantime grew their overall bullishness on gold in the week-ending last Tuesday, latest data from regulator the CFTC show – the first such rise in two months.
The so-called “net long” of bullish minus bearish bets held by non-industry players rose by 13% to the equivalent of 204 tonnes – only the 7th week-on-week rise out of 23 weeks so far in 2013.
Compared to New Year, however, the total net long remained below one-third the size. It was less than one-fifth the record levels of summer 2011.
“Silver [positioning] followed the recovery in gold,” says the weekly analysis from Standard Bank in London.
“Unlike for gold, it was an addition to speculative longs that drove the overall improvement…avoiding a push into negative territory which had seemed imminent.”
Adrian Ash | BullionVault