The Daily Nugget: Gold Climbs On FOMC Minutes

Yesterday the markets waited for the release of the FOMC minutes and clues on QE tapering. The gold price waited and it was soon rewarded.

The minutes were not as bullish as the markets had previously expected, but instead were hawkish and contained no new information.

Following previous FOMC announcements, press conferences and speeches many had expected the minutes to indicate a desire to start tapering towards the end of the year. Instead they indicated that the committee is divided over the $85bn purchases, the minutes read “several members judged that a reduction in asset purchases would likely soon be warranted.” However other members said the “cumulative decline in unemployment since the September meeting and ongoing increases in private payrolls” had increased their convictions that QE should be tapered in the coming months. “Many other participants anticipated that it likely would be appropriate to continue purchases into 2014.”

Following the release of the minutes Bernanke said the U.S. would continue with this highly accommodative monetary policy for the foreseeable future, prompting the U.S. Dollar Index to head downwards by 1.7%.

Whilst many believe that the US can stop QE whenever unemployment is sorted, they don’t consider the rest of the world who are also embarking on their own QE programs. Should the FOMC suddenly stop, then they will have a weak position in the currency wars.

As expected, the gold price rallied on the news and finished the day higher for the third straight session. This morning it continues to climb.

Silver also benefited from the FOMC minutes and gold’s rally. Silver futures closed near the session high. Prices remain in an 8 month down trend. Interesting news on silver, whilst COMEX’s silver warehouse stocks remain relatively flat since April, the opposite has been the case for the Shanghai Futures Exchange where 32% of silver warehouse stocks have been removed.

Shanghai Gold Exchange
This week we release a major piece of research that looks into the Shanghai Gold Exchange. Given the significant rise of gold exports from Hong Kong to China, 68% YoY, this is a timely and informative research piece which shines a spotlight on the Eastern gold market in a time when many are declaring the end of the gold bull market. Given the huge demand for physical gold and reportedly high premiums on the gold price, we ask if this market may well be a better indicator of gold demand, and subsequently true gold price, than either COMEX or London.

Key takeaways from the report include:

- SGE volumes only ~3% of COMEX volumes

- Deliveries on SGE >37% compared to COMEX’s 2.7%

- SGE deliveries totalled 236 tonnes in April 2013

- Delivery amounts on SGE now exceeding HK gold imports and global mine supply

- Mythical premiums to COMEX barely exist, averaging 1.41%

- Physical nature of SGE gives it growing role in setting gold prices going forward