Gold Price Hits 2-Week High as China Volumes Jump, Real US Interest Rates Seen 'Neutral' for Gold

LONDON (Scrap Monster) : Gold price gains of 1.8% last week were extended Monday morning, with a further 0.6% rise taking wholesale bullion to $1275 per ounce as US stock-market futures pointed lower.

Asian stock markets closed the day higher overall, but European equities cut earlier gains by lunchtime.

Commodities were flat with major government bonds. Silver prices tracked and extended the rising gold price, hitting their own 2-week highs above $20.25 per ounce.

"China's return to the market following the New Year's festivities is likely to have played a part in the rising gold price," says a note from Germany's Commerzbank.

Trading on the Shanghai Gold Exchange was brisk Monday, with volume rising more than 50% from Friday – the first day back after the Lunar New Year holiday – but Chinese premiums to the wholesale London price edged back $1 to $10 per ounce.

Industry body the China Gold Association said Monday that 2013 mine output and end-user demand in the world's second-largest economy both hit a new record.

US gold futures data also "suggest more bets on climbing prices have been made again" over the past week, reckons Commerzbank's commodities team.

Latest figures from US regulator the CFTC say hedge funds and other "large speculators" cut their bearish betting to a 3-month low before last week's weaker-than-expected US jobs data were released Friday.

"The poor US payrolls data inhibits the market from pricing in an acceleration of Fed tapering," says Swiss investment  bank UBS.

Bond-fund giant Pimco says it expects the Federal Reserve "to move very gradually in reducing accommodative policy" in 2014, leaving the real yield offered by US bond over and above inflation "relatively steady around current levels."

Reviewing the relationship between gold and real interest rates, that "would be neutral for nominal gold prices," Pimco concludes.

But this year, disagrees US investment bank Morgan Stanley, the gold price faces "headwinds" from higher US interest rates thanks to the Federal Reserve tapering its $65 billion of monthly QE money printing.

Cutting its 2014 gold price forecast by nearly 12% to $1160 per ounce, Morgan Stanley also points to "mounting regulatory pressure on investment banks to scale back commodity operations."

Courtesy: www.bullionvault.com