Gold Prices "Bullish", Sidestep "Deadly Mix" of Rising Dollar & Rates, Central Banks Ready Stimulus

EDGWARE (Scrap Monster): Gold prices ticked higher to 3-session highs Monday lunchtime in London, touching $1246 per ounce as European stock markets reversed half of Friday's big bounce.

France's CAC40 share index stood more than 10% lower for October so far, while the gold price in Euros held 2.0% higher as the Dollar edged back today on the currency market.

After policymakers from the US Fed and Bank of England said last week that QE and low-rate stimulus may be maintained much longer yet, the European Central Bank was today rumored to have begun buying commercial bank debt in the open market as part of its "asset purchase" scheme, aimed at boosting the ECB's own balance-sheet by €1 trillion in a bid to avoid deflation for the 18-nation currency zone through monetary stimulus.

Expectations that China's central bank will inject short-term loans into major banks this week drove Beijing's 1-year money market rate down to 2.99% – its lowest level in 25 months – reports Bloomberg News.

"On a weekly basis," says technical gold price analysis from market-making bullion bank Scotia Mocatta's New York team, "we remain focused on [mid-Oct]'s bullish outside reversal candle formation followed by [last] week's gain."

Thanks to last week's late rally in world stock markets however, "We are expecting $1250 to form a strong resistance," says a note from refining and finance group MKS, pegging short-term support in gold at $1220-1225.

"Further improvements to the global macro climate may see gold test towards $1200," it adds.

A stronger Dollar and rising US interest rates – over and above inflation – would offer "a deadly mix" for gold prices, says a cross-asset research note from French bank and London bullion market-maker Societe Generale.

"With the recent acceleration in US economic growth," it says, "we expect the market to start pricing in a much faster pace of US rate hikes than currently discounted...[and] are implementing our strong Dollar view in commodities by shorting gold."

Short bets against gold were cut last week by hedge funds and other large speculators using Comex futures and options contracts, latest data from US regulators showed Friday.

That same group's bullish betting rose for the second week running from four-month lows.

So-called "non-reportable" positions, in contrast – meaning smaller and private-investor accounts – grew their net betting against gold to the equivalent of 20 tonnes, the largest "net short" for small speculators in gold since the UK's shock gold-sales announcement of May 1999.

"Gold prices always suffer from US Dollar strengthening," says SocGen's analysis, citing an "84% correlation since 2012."

Over the last 45 years, analysis by BullionVault shows, gold priced in the US currency has moved in the opposite direction to the Dollar's trade-weighted index against other major currencies some 60% of the time on a rolling 12-month basis.

Chinese gold prices ended Monday unchanged at the Shanghai Gold Exchange, putting the main wholesale contract's premium over London prices at a 1-month low beneath $1 per ounce.

New York's giant iShares Silver Trust (NYSEArca:SLV) shed metal again on Friday, taking the quantity of bullion needed to back its shares to a 1-month low of 10,681 tonnes – some 2% below the record high seen at the start of October.

Priced against silver, gold today held above 71 ounces – a five-year high – for the fourth trading day in succession.

The price of platinum – like silver, primarily an industrial metal – meantime rallied further on Monday from last week's 5-year lows, extending its premium over gold prices towards $25 per ounce after hitting parity for the first time since April 2013.

Crude oil meantime rallied for a third day after dropping 17% in three weeks, but agricultural commodities fell hard and major-government bond prices rose once again, pushing market interest rates down.

Gold's benchmark "Fixing" mechanism will be discussed this Friday at a seminar in the City of London, with wholesale market participants reviewing proposals to replace the 95-year old process.

Courtesy: www.bullionvault.com