While Higher Prices "On the Cards by Year End"
Gold Prices dipped briefly below $1690 per ounce during Wednesday
morning's London trading, remaining close to six-month highs, while
stocks and commodities were also broadly flat, ahead of tomorrow's
policy announcement from the European Central Bank.
Silver Prices dipped below $32 per ounce before recovering, ending the morning over 1% up on the week so far.
"The next resistance is at $1700," says the latest technical analysis from bullion bank Scotia Mocatta.
Spot market Gold Prices briefly touched that level on Tuesday,
following the release of the latest ISM purchasing managers index data.
The ISM data show US manufacturing activity contracted in August for
the third month in a row, prompting further speculation about the
possibility of a third round of quantitative easing from the Federal
Reserve, whose policymakers meet next Tuesday and Wednesday.
"[The ISM report] gives the Fed another green light to launch QE3
next week," reckons Paul Dales, senior US economist at consultancy
Capital Economics.
"Will QE really come?" asks Dominic Schnider at UBS Wealth Management.
"It is a little too early to go full throttle...policymakers are
heating things up, but will what eventually comes out to be as big as
the market is looking for?"
The volume of gold held to back shares in the world's biggest Gold
ETF, the SPDR Gold Trust (GLD), rose to its highest level since March 19
yesterday, hitting 1293.1 tonnes. Total Gold ETF holdings meantime set
an all-time record Tuesday, according to newswire Reuters.
On the New York Comex, open interest in Gold Futures rose to six
month highs yesterday, although we will not know the balance of bullish
and bearish positions until the weekly Commitment of Traders report
comes out at the end of the week.
In Europe meantime, the ECB and Bank of England are due to make their
latest policy announcements tomorrow. Earlier this week, ECB president
Mario Draghi reportedly told a committee of European Parliament
lawmakers that he favors buying sovereign bonds of up to three years in
maturity on the open market.
"We expect the ECB action to be supportive of gold," says today's commodities note from Standard Bank.
"A stronger Euro and weaker Dollar could see gold move above $1700."
Over in India, traditionally the world's largest Gold Buying nation, there are fears of another rise in gold import duties.
"The government may look at increasing the duty to 7.5%," says Prithviraj Kothari, president of the Bombay Bullion Association.
"Any such move will hit demand in a big way."
"Any increase in duty will play havoc on the industry," agrees
Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade
Federation.
"The industry is grappling with high Gold Prices and demand is slow."
Rupee Gold Prices set another all-time high on Wednesday, as the Rupee fell to a six-week low against the Dollar.
Indian gold jewelry demand however is set to rally in the second half
of 2012, after falling to three-year lows in the six months to June,
precious metals consultancy Thomson Reuters GFMS said Tuesday.
GFMS, which published its Gold Survey 2012 Update 1 yesterday, added
that it expects Gold Prices to breach $1800 by the end of this year,
with Gold Investment forecast to hit record levels and central banks
expected to add a further 220 tonnes of gold to their reserves,
following the 273 added in the first half of the year.
"I think we're on pretty safe ground saying that we've already seen
the lows for the year and that firmer prices, particularly towards
year-end, are on the cards," said GFMS global head of metals analytics
Philip Klapwijk.
"But we're also expecting a bumpy ride...any intensification of the
Eurozone crisis or dashing of hopes for further easing by the Fed and
you could easily see the rally derailed for a while."
