Daily Nugget: Will We Be Thankful For The Gold Price?

The deal made between Iran and world powers in Geneva has prompted gold and silver to fall as safe haven demand has been somewhat dampened.

The US has agreed to ease sanctions on the country, sending the US dollar to a multi-month high. Several leading currencies have fallen against the dollar in the last week, namely the Japanese Yen and Aussie dollar.

The relief of some sanctions is likely to be bearish for gold. The precious metal had benefitted from the sanction-hit country taking payment in gold from countries buying energy exports. Whilst the country does not reveal its gold reserves, Thomson GFMS reports in 2012 that Iran imported 36.9 metric tons of gold for jewellery.

Gold hit a four-month low this morning, silver reached a 15-week low. Whilst current prices may seem depressing enough, many analysts believe the price will fall lower into 2014 before climbing up to resume its multi-year bull run. The recent action in the gold price, two months up following the summer and then two months down shows ‘a typical correction pattern’ according to David Bensimon of Polar Pacific.

Holdings in the SPDR Gold Trust, the largest gold ETF, have now fallen by 37% since the start of 2013. On Friday they fell to their lowest since January 2008, by 4.50 metric tons to 852.21 metric tons.

Gold remains sensitive to the sentiment of the US Federal Reserve. Back in September, the FOMC said that tapering would not go ahead for another couple of months, the gold price promptly rallied 5%. But, last week when the FOMC said that tapering would happen sooner rather than later, the price of gold fell by 3%.

Given the certainty with which everyone is discussing tapering going ahead, gold is unlikely to experience a major sell-off if/when it is finally announced. This is on account of the fact that both gold and silver are likely to have priced in tapering.

According to an article on Bloomberg the attraction of gold is waning due to falling global inflation. However, for the majority of gold’s rally (2001- 2011) inflation was low. Now, low interest rates and ongoing support of easy monetary policies, the environment may well be set for a rally similar to that seen in the 1970s.

The weak gold price is having less of an impact as it did back in both April and June, upon both dramatic price drops buyers rushed in – particularly in China. This effect is now wearing off as investors grow comfortable with the low price.

Goldman Sachs Group Inc, (GS) are back with a really bullish gold forecast…no you’re right I’m joking. They are, as expected, bearish on gold but not to the extent of the ‘slam-dunk sell’ comment we heard a while back. The bank forecasts the gold price is ‘in retreat’ and expect the price to fall by a further 15% in 2014.

No key data, announcements or meetings are scheduled for this week. This week is likely to be quiet ahead of Thanksgiving on Thursday in the US.