Daily Nugget: Gold Remains Under Pressure

Whilst the gold price made some gains overnight, thanks to some short-covering and options-related buying, it remains under pressure and without direction due to the amount of speculation surrounding the Fed’s tapering decision.

The SPDR Gold Trust continued to experience outflows yesterday, holdings fell by 3.30 tonnes on Monday. Outflows from the ETF have totalled approximately 450 tonnes so far this year.

Jumpy US data

All eyes are on any signs that the US economy might be recovering. So far, the data is a mixed bag. Yesterday figures showing contracts to buy previously owned homes were at a ten-month low, whilst some resilience has been seen in the services sector.

Both the gold and silver price are likely to remain volatile ahead of next week’s non-farm payroll data on 6th December and the FOMC’s meeting the following fortnight. At present the only short-term drivers for gold are QE and the dollar. The former is, as we know, still going strong whilst the US dollar continues to make gains from the Iran deal.

Did Iran deal harm the gold price?

Yesterday we commented on the impact the deal with Iran would have on the gold price. Now Standard Bank Group Ltd. and Societe Generale SA. have both issued statements saying that they believe the easing of sanctions over the gold trade will have little impact on the price of gold. When the sanctions were tightly in place, Iran was forced to use gold as a medium of exchange when trading crucial goods such as oil. Now, this is unlikely to be needed. Many speculate that the success of Iran and its trade partners made of using gold as a currency was one of the reasons the US pushed for negotiations.

Venzuela and Goldman’s play pass-the-parcel

Speculation continues over the Goldman Sachs/Venezuela gold swaps agreement which would see the government put up 1.4 million ounces of gold to secure a loan worth 90% of the value of the yellow metal, should it go ahead. The move is seen as a sign of desperation from a government that has pushed inflation up to around 48% – 50% and practically halted economic growth.

Chavez famously repatriated its gold reserves in a move he said was against the ‘dictatorship against the dollar’. Now, the country is in a tight spot and in order to trade, is looking for dollars but wishes to make money from its gold without selling it. So, they have agreed to borrow $1.6 billion from Goldman for seven years, in return $1.8 billion of gold will be used for collateralizing the borrowing. However, in order to do this they’re pretty much guaranteeing they’ll never see the bullion again as it is to be deposited at the Bank of England so that Goldman Sachs Group Inc, (GS) can get their hands on it.