Gold Prices Bounces Off as US Inflation Slows, Dollar Gains, China Eyes Miner Hedging

EDGWARE (Scrap Monster): Gold prices bounced Wednesday in London off $1242 per ounce – a "key" technical level according to several chart analysts – as new US inflation data showed the Consumer Price Index falling last month from August.

Seasonally adjusted, and excluding fuel and food costs, so-called "core inflation" rose from 0% annually to only 0.1%, missing Wall Street forecasts.

The Dollar rose after the news to 1-week highs against the Euro, while European stock markets reversed earlier losses and US equity futures pointed modestly higher.

Commodities extended their bounce, and major-government bond prices also rose.

Tuesday's close above "critical resistance" at $1242 had confirmed a "bullish event", technical analysts at Swiss bank UBS said earlier – pointing to that level as the 38.2% retracement of gold's July to October drop.

Gold, agrees UBS's fellow market maker Scotia Mocatta, rose yesterday above both that Fibonacci level as well as the 50-day moving average of prices at $1248.35.

"Momentum indicators are biased to further upside," Scotia said overnight, also pointing like to UBS to $1264 and then $1283 as gold's next likely resistance levels.

Falling to $1242 after today's US consumer price news, gold prices then held $10 below Tuesday's new 6-week high of $1255, defying German bank Commerzbank's comment that if inflation slowed, "gold could receive an additional boost, as the Fed might raise interest rates later than previously expected."

In today's action "The Chinese were sellers," says one Asian dealing desk, "which was of no real surprise" with prices hitting 6-week highs.

"Offers on the [Shanghai Gold Exchange] were layered up preventing any move higher," says Swiss refining and finance group MKS.

Solid volumes today saw Shanghai's premium above London gold prices tick higher from Tuesday's 1-month low at 15 cents per ounce.

Besides its existing gold contracts, the SGE is planning to add forwards and options – a crucial offering for "bullion bank" mining finance – sometime soon, Reuters quotes unnamed sources.

The world's No.1 gold mining producer since 2007, China will see output growth slow from 5% this year to below 1% in 2018, according to analyst Xinying Chia at Business Monitor International (BMI), with its current beloow-ground reserves depleted around 2020.

Gold miners worldwide, says new analysis from market consultancy Thomson Reuters GFMS, will this year "hedge" some 40 tonnes of production net, selling forward the greatest volume to lock in prices since the market bottomed – and miner hedging neared its peak – in 1999.

The global hedgebook peaked above 3,100 tonnes of gold in total, more than a current year's worth of world mine output, in 2001.

Courtesy: www.bullionvault.com