Today’s AM fix was USD 1,346.00, EUR 967.16 and GBP 809.72 per ounce.
Yesterday’s AM fix was USD 1,362.50, EUR 979.37 and GBP 820.49 per ounce.
Gold extended losses to a third session today. Gold has fallen from the six month high of $1,391.76, touched earlier this week on the deteriorating geo-political situation between Russia and the West. Traders have taken profits as tensions have eased somewhat, in the short term at least.
Gold should be supported by the deterioration in relations between the U.S. and Russia. Russian Foreign Minister Sergei Lavrov told U.S. Secretary of State John Kerry that Western sanctions over the Crimea dispute were “unacceptable” and “will not remain without consequences.”
Putin said he did not plan to seize any other part of Ukraine, and Kerry later cautioned that any incursion into other parts of Ukraine would be an “egregious step” and a major challenge for the international community. Geopolitical risk shows the importance of owning gold as a hedging instrument and safe haven diversification.
Traders may have been hesitant to go long gold, ahead of the meeting of the Federal Reserve. The meeting is the first presided over by Fed Chair Janet Yellen.
Yellen said the Fed could keep interest rates unusually low even after the U.S. job market returns to full strength and inflation rises to the central bank’s target. Yellen also dropped a set of guideposts it said it was using to help the public anticipate when it would finally start bumping overnight borrowing costs up from record low levels at zero, including the employment measure. It said, however, that dropping a promise to hold rates steady “well past the time” the U.S. unemployment rate falls below 6.5 percent did not indicate any change in its policy intentions. Rather than relying on unemployment and inflation thresholds to guide expectations, it said it would use a wide range of economic indicators.
But what stood out in the Yellen’s statement was her embrace of easy money policies even after the Fed achieves its goals of full employment and 2% inflation. Stocks rose on the news as expected. This is bullish for gold, despite weakness in recent hours.
The bottom line is that the Fed is set to maintain ultra loose monetary policies in the form of continuing debt monetisation and near zero percent interest rates. Yellen basically confirmed today that she is going to “print baby print”.
Reuters reports that dealers of gold bullion in Singapore and Hong Kong, noted a slowdown in physical demand in recent days. Premiums have fallen and domestic gold prices in China are trading at discounts to cash gold.
Concerns about a spate of Chinese corporate bond defaults and the shadow banking system in China should support gold but demand appears to have abated somewhat in recent days. Although it may be best to wait to see the monthly import export data prior to writing off Chinese demand just yet.
Chinese defaults and problems in the Chinese financial system will be very gold supportive as the Chinese use gold as a store of value and financial and systemic risk will lead to safe haven demand.
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