Gold Hangs On During A Tricky Week

Today the gold price has remained relatively steady, but has edged slightly lower, as markets await the outcome of the FOMC meeting, which commenced today. The majority of commentators do not expect any changes in either the interest rate or the general message from the Committee yet Bloomberg reports the market as ‘nervous’ ahead of the Fed’s announcement.

Whilst no mention of no indication over tapering is expected to be given, strong housing data earlier today has given rise to speculation that tapering is on the agenda. Housing data may have been strong (US house prices rose by the most in May compared to the last seven years) but home ownership has plunged to an 18 year low as rents hit a record high.

Other data releases out this week, namely non-farm payrolls data, are also expected to influence the Fed’s decision, which will of course affect the price of gold. Some analysts remain bullish on the results of the data, which will be out on Friday.

Today also sees the release of the (expected) weak US Q2 GDP report, analysts believe it will have increased by just 1%. Given this expectation we do not expect any significant changes when it is released.

Central banks and gold bullion demand

In a similar theme (we suspect) to other central bank meetings this week, the Reserve Bank of India has decided to leave interest rates unchanged at 7.25%, they reaffirmed their pledge to fight the weak currency. As we know, one of the weapons in this battle has been gold controls. Both Bloomberg and Reuters this morning reported on the increase in gold price premiums and the fall in imports. The two factors are causing some concern for the domestic gold investment market ahead of Autumn’s festival season.

News of ‘subdued’ buying on the Shanghai Gold Exchnage overnight has seen the gold price premium fall to $20/oz, last week it was around $25/oz. It will be interesting to see what happens later, when the exchange opens, as the Chinese central bank has just announced the injection of 17bn yuan into the money markets.

Subdued silver price

Good news for those looking to buy silver bars – Barclays today has written in a note that the silver price may drop by a further 12% – to a three year low – as it forms a ‘bearish pennant’, a triangular pattern. Should the price close below $19.25/oz, Barclays believes this may trigger selling, pulling it down to as low as $17.50.

Platinum: a safe-haven?

Platinum continues to defy its fellow precious metals, namely gold, this year. Platinum is now expected to average $1,550 in Q4, compared to gold’s $1,300, according to Credit Suisse. Thanks to a boost in car sales and supply difficulties in South Africa, the industrial precious metal is benefiting from a boom in demand. Supply has fallen to a 13-year low, yet 60% of platinum demand comes from industries which continue to operate and require the metal. In contrast only a small percentage of gold (around 10%) is used for industrial purposes, and supply is not as tight as it is for platinum.