A lack of fresh, bullish news kept gold prices low yesterday, which finished the COMEX session moderately lower than the previous session. Bullish action in equities and Fed taper talk also contributed to the lack of action in the gold price.
Silver fell to its lowest since August, meanwhile both platinum and palladium returned to one-month lows.
Holdings in the SPDR Gold Trust fell to their lowest since February 2009.
The current major bull run in equities is keeping investment away from other asset classes, including precious metals. Yesterday stock indexes hit either new records or multi-year highs. Yesterday global equities were near their highest level since 2008, they have rallied 18% in 2013.
Markets remain preoccupied by the release of the FOMC minutes tomorrow, in the hope that they will provide some indication of the committee’s sentiment towards tapering.
Fed fuels taper rumours
Yesterday Fed officials continued to add fuel to the speculation surrounding tapering. Charles Plosser, Philadelphia Fed president, said the central bank should stop playing “this bond-buying game by ear” whilst William Dudley New York Fed president said signs that the US economy was recovering was not enough to ensure an improvement in the labour market.
Even though both Fed presidents mentioned above come from different sides of the monetary policy spectrum, the fact that both pointed towards signs of the US economy recovering has put some pressure on gold.
The uncertainty surrounding tapering and discussions of it being delayed, have also contributed to the dollar weakness. Yesterday the Bloomberg US Dollar Index slipped to its lowest level in nearly two weeks. Treasury yields dropped four basis points.
Global deflation concerns
Adding to the concerns about worldwide deflationary pressures, the Organization for Economic Cooperation and Development (OECD) yesterday reported the collective GDP of the world’s 34 major economies rose by 0.5% in the last quarter, from the second quarter this year.
Citi’s gold price forecast
Speaking of tapering, Citi Research said yesterday that the matter is now a question of ‘when’ not ‘if.’ They see March as the earliest possible date for the measures to go ahead. This ‘delay’ in tapering (from month-to-month) will only offer gold a ‘short-term reprieve.’
Citi is looking for gold to average $1,255/oz in 2014. The bank believes Chinese physical demand will ‘represent a key source of price support for the gold market…and we believe renewed positive buying momentum in China will prevent a wholesale rout of gold prices.’
Following 2014, Citi predicts higher annual averages of $1,350 in 2015 through to $1,420 in 2018.
Silver will also suffer, should tapering go ahead, says the bank. However, it will find some price support in the ‘largely inelastic mine supply growth,’ and, like gold, it will then rise following the $20.30 low in 2014.
The bank’s metal of choice, however, is palladium due to the auto-demand outlook and high hopes for the Absa Capital palladium ETF.