US Mess Keeps Gold Up

Early this morning the gold price touched a five-week high as traders bet the FOMC will refrain from tapering QE later this week. The two day meeting will commence tomorrow. The statement released post-meeting will be seen a crucial in terms of indicating when they will go ahead with tapering.

Gold market speculators will be looking at the $1,350/oz level watching to see if the yellow metal can break past this key point of resistance. However, in terms of a bullish upsurge many believe that this won’t be able to happen until the gold price is above $1,430.

Prior to the partial government shutdown many analysts had predicted that the Fed would start tapering before Christmas. Now it seems many do not expect any decision on the matter to be made prior to the February round of debt-ceiling debates. A Bloomberg survey found that analysts expect the Fed to begin cutting purchases in March.

Having suffered significantly from the US-centric view recently, gold is now making some gains on the royal mess that has been going on in the last month or so. In the last couple of weeks the price has climbed 6% thanks to budget battles and disappointing data.

Here in Europe analysts are working to decide if a series of "asset quality reviews" to be carried out by the ECB will affect asset prices, including gold. New regulation issued by the central bank state 8% of financial institutions’ risk-adjusted capital will have to be put aside to act as a buffer against bad loans.

If the review finds that banks will struggle under the new regulations this may place pressure on the Euro and prompt Europeans to buy gold as a safe-haven. These new regulations and the fanfare surrounding them suggests that all financial and economic problems in the Eurozone have been dealt with. This is not the case, instead they have been overshadowed by US events. When these push themselves to centre stage once again we are likely to see further safe-haven buying.

According to Reuters premiums on the Shanghai Gold Exchange fell to negative levels early this morning before recovering to around $1 an ounce. Levels of trading have fallen to those seen in early April, prior to the price drop. Meanwhile despite premiums of $130/oz in India, demand is still reported as "subdued" ahead of key festival buying.

New data from the IMF shows Russia, Canada and Mexico reduced their gold holdings. For the South American country this was the 17th consecutive month of gold sales. Meanwhile Kazakhstan increased their holdings by over 2.5 tonnes. Canada holds just 3 tonnes of gold.