Gold Price Tumble, Fed Minutes Signal Lower Odds of QE3

A recap of the most recent Federal Open Market Committee (FOMC) meeting, the Fed minutes indicated that the odds of a third round of quantitative easing (QE3) in the near future have been meaningfully reduced. MarketWatch.com posted the following summary the minutes:

There was less interest in another round of asset purchases, commonly known as quantitative easing at the Federal Reserve’s policy meeting in March, according to the minutes released on Tuesday. At the meeting, only a couple of members suggested that more easing could become necessary if the economy lost momentum. At the previous policy meeting in January, a “few” Fed members thought the central bank could start adding more long-term securities before long and “a number of participants” indicated they were open to the idea if the economic outlook deteriorated. The Fed officials thought that the economy was a “bit stronger” but had not changed the outlook in a material way. While recent job numbers has been encouraging, a number of Fed officials said there was a risk that improvements could diminish as the year progressed, as happened in the last two years. The minutes reveal that the Fed discussed more ways to communicate their views to markets but made no decisions.

Gold price to be largely dictated by euro/dollar movements today

Once again, a weaker euro (and the consequent dollar strength) served as a downward impetus for gold price markets yesterday. Slowly, market participants are returning their attention to the Eurozone and the possibility of further fiscal problems in the region and, for now, the focus is on Spain. Also, comments from S&P overnight once again brought Greece’s rating into question, highlighting the high risks and inflexibility of the current plan.

We expect movements in gold price to be largely dictated by euro/dollar movements today. Consequently, we could see gold price react to the plethora of US data out today (GDP, jobless claims and Kansas City Fed manufacturing activity). For the most part, this reaction will hinge on what market participants think the data flow means for the possibility of further quantitative easing. Therefore, a disappointing set of numbers could be the most positive outcome for gold price.

Keeping with the quantitative easing theme, there are several Fed members scheduled to speak today, including Fed Chairman Bernanke. No doubt, the market will be all ears to try and determine from their respective remarks whether or not the Fed is planning another round of quantitative easing. After Bernanke’s most recent dovish comments, expectations of increased monetary accommodation have been heightened. Therefore, should any of today’s commentators be perceived as being too hawkish, we could see a marked knee-jerk reaction to the downside from gold price.

Physical demand is improving below $1,650 with buying in Asia (ex-India) strong on approach of $1,630

Gold is finding resistance on approach of $1,670. In fact, resistance between $1,670 and $1,687 (the 200d MA) is great. For gold to move higher, this range has to be broken first – something we do not expect in the next few days. We believe that rallies towards $1,670 will be sold into. We continue to believe that the metal provides value between $1,630 and $1,600.

Physical demand is improving below $1,650 with buying in Asia (ex-India) strong on approach of $1,630. We have seen a marginal pick-up in the SGE gold premium too ($7.5/oz this morning from around $6/oz at the start of last week) – another indication that dips in gold are being bought into. Although Indian demand remains low, we do expect demand to pick up in April as the Akshaytritya festival in late April is fast approaching. This is the second-biggest gold festival in India.

The rally in the US 10-year government bond yield moved rapidly higher early last week on the back of higher growth expectations. The yield moved from 2% to 2.4% in a few days but has since retreated to 2.25% again. Silver is finding strong resistance on any rally. We believe that it will continue for a few more months. We still think rallies above $35/oz are likely to fade. However, we also believe that when the silver market conditions improve, the price could move sustainably above $35/oz again. Gold support is at $1,652 and $1,630. Resistance is $1,660 and $1,644.

Gold,continued to languish yesterday afternoon as disappointing Eurozone figures

Gold, and the rest of the complex, continued to languish yesterday afternoon as disappointing Eurozone figures kept the euro on the back foot and investor enthusiasm remained lacklustre. Better-than-expected US data flow (jobless claims and the leading indicator) also contributed to reduced interest as a further dent to quantitative easing expectations.

Overnight though, Asian buying interest was forthcoming at the start of the trading day. This kept prices relatively stable for most of the trading session until some liquidation in gold brought prices down. This morning, gold has been tracking euro/ dollar movements with some euro weakness adding support. Indian buying in the physical market has also resurfaced providing an extra level of support.

Once again, we have some scheduled comments from Fed members, but these are unlikely to spark any marked reaction as it is improbable that these platforms will be used to bring up anything new on the Fed intended operations. In addition, market participants should be getting used to the idea that further quantitative easing appears extremely unlikely at his stage. To this end, if we see disappointing new home sales numbers we could see these quantitative easing hopes re-emerge. Continued housing market distress might see the Fed buy mortgage-backed securities, although it should be kept in mind that these would most likely be sterilised.

Gold support is at $1,633 and $1,616. Resistance is $1,663 and $1,675.

Financial problems of Europe will be revisited sooner rather than later

The gold price held firm near $1,655 per ounce on Wednesday as the yellow metal continued to consolidate in morning trading.  The price of gold, as well as the U.S. Dollar Index, oscillated between gains and losses in overnight trading.  Silver moved modestly higher, by 0.3% to $32.30 per ounce.

In the latest edition of his Gold Monitor, Murenbeeld wrote that “The case for some gold bearishness is fairly compelling at the moment.  Europe is in recession and with the prospect of no further LTRO, fiscal retrenchment and deflationary domestic pressures are front and center…China is slowing, and while no one can know exactly how rapidly, there is growing speculation that the slowdown is turning into a ‘harder’ landing than government officials have suggested… The US dollar is well bid, not least because there is renewed optimism over the US economy.”

However, despite the near-term bearish factors, Murenbeeld contended that the longer-term outlook for the price of gold remains quite favorable.  “Our principle argument for QE3 actually rests with the likelihood of a financial/banking disaster in Europe (which for the moment has been postponed because of LTRO1 and 2),” he wrote, “and the Fed will then wish to insulate the US financial sector from the contagion.”

“With respect to Europe, it is highly doubtful monetary reflation is finished,” the Dundee economist added.  “Where, for example, will the €500 billion for the ESM come from, or the billions remaining to be doled out under the EFSF in the likely event this program continues through 2013?…this money doesn’t grow on trees; it will have to be borrowed by some government and/or it will have to be printed by some central bank. In our view the financial problems of Europe will be revisited sooner rather than later.”

Support in the physical market below $1,640 but this is not strong enough

Gold remains within its $1,640 to $1,660 trading range of the past few days. There is good buying support in the physical market below $1,640 but this is not strong enough, or buyers are not keen enough to chase the metal higher. Indian demand remains lacklustre with the local market still digesting how best to cope with the hike in taxes. However, indications are that the Indian market is likely to look for opportunities on dips lower in the gold price in anticipation of festival demand in late April.

Gold support is at $1,644 and $1,640. Resistance is $1,662 and $1,674.

US economy remains fragile and that this is why the Fed is holding out on its decision regarding further quantitative easing

Once again, precious metals received a shot in the arm from a weaker dollar yesterday afternoon. The weakness was mainly as result of the better-than-expected current account figures and comments from New York Fed President Dudley that the US economy remains fragile and that this is why the Fed is holding out on its decision regarding further quantitative easing. Of course Dudley’s comments have also buoyed the complex from a liquidity perspective, especially since recently the news has not been too positive on that front.

However, this support proved transitory as the lack of physical buying has weighed on gold, which is taking the rest of the complex down with it. Physical buying out of Asia has evaporated as India’s bullion markets remain closed in protest to last week’s announcement of an increase in import duties on gold. Indian buyers are expected to return tomorrow.

This morning, precious metals are struggling to shake off the overnight downward momentum, with a slightly stronger dollar adding to negativity. Concerns over a stronger US economy and a slump in India’s gold demand (after the import duties are raised) are keeping the precious metals on the back foot. Not much to look forward to today in terms of data flow, although US housing numbers and scheduled Fed speakers could prompt some reaction.

Gold support is at $1,644 and $1,640. Resistance is $1,662 and $1,674.