Gold Prices at 8-Month Low "Face Key Risk" from Rising Dollar, US Fed Policy Statement

EDGWARE (Scrap Monster): Gold prices managed only a 0.6% bounce from new 8-month lows hit in Asian trade on Friday, briefly touching $1240 per ounce before easing back in London dealing as world stock markets held flat with the US Dollar.

Silver outpaced the gold rally to bounce 1.1% from a new 15-month low of $18.47, hit overnight at the start of Chinese trade.

Broad commodity indices steadied at new 5-year lows, and Europe's Brent crude oil benchmark again held below $100 per barrel after the International Energy Agency cut its forecasts for 2014 and 2015 citing a "remarkable" drop in global demand.

"The downside pressure on gold prices in recent days clearly stemmed from the futures market," reckons a note from analysts at Commerzbank, pointing to an upturn in the quantity of gold bullion held to back exchange-traded gold funds (ETFs).

But "a stronger US Dollar and higher bond yields have been an issue for gold all week," says Australia's ANZ Bank, "and remain a headwind going forward."

Now rising for 9 weeks running, says Reuters, the US Dollar index – which measures the US currency against the next 6 largest worldwide – has seen "its longest streak of weekly gains since the first quarter of 1997."

"Gold prices will likely fall," Bloomberg quotes a Commonwealth Bank of Australia analyst, "if the Fed becomes more hawkish on its interest rate outlook" in next week's policy statement.

"The US Dollar has potentially much more room to the upside," agrees a note from Swiss bank UBS's precious analysts Joni Teves and Edel Tully – "a key risk for gold.

"A hawkish tone to the Fed next week [would be] an obstacle gold can't surmount."

Dollar strength, however, "has only really been against the other major currencies," notes FX strategist Steven Barrow at Standard Bank,

"Sure, there's been talk of more hawkish Fed language next week...But the more concrete changes have been ECB policy (which has eased) and the Scottish referendum (where the polls have closed)."

Versus the Dollar's major currency index – now 4% higher since 1 July, says Barrow – the Other Important Trade Partner Index (OITP) "is essentially flat."

The Indian Rupee rose on Friday at the fastest pace in a month against the Dollar, says Reuters, helping push gold prices in the world's second-largest consumer market to 3-month lows.

With India's gold import duty still deterring wholesalers and consumers at 10%, that put futures prices on the MCX exchange just beneath INR 27,000 per 10 grams.

Trading volume on the Shanghai Gold Exchange was meantime heavy on Friday, with the major gold contract holding at a premium to international prices of $2 per ounce.

"We did see a good amount of physical buying late in the session," says one trader's note.

New data today showed new private-sector lending in China – the world's second-largest single economy – beat analyst forecasts last month to rise more than 80% above July's level.

Courtesy: www.bullionvault.com