Gold Prices Erase All 2014 Gains on US Fed Outlook, Asian Demand

EDGWARE (Scrap Monster): Gold prices fell to new 2014 lows Thursday lunchtime in London, extending their drop since yesterday's US Federal Reserve policy decision to more than $20 per ounce.

Trading down to $1216 per ounce, gold prices earlier recorded their lowest London Fix since 2nd January – the first trading day of the year – at $1223.

Asian dealers reported "good physical demand on the move lower", with premiums above London quotes on the Shanghai Gold Exchange rising to $6 per ounce.

Visited today by Chinese premier Li Keqiang, the SGE today launched its new free-trade zone gold contracts, aimed at foreign institutions wanting to deal for Yuan held off-shore.

Gold inflows to India – overtaken by China as the world's No.1 gold buying nation on a raft of anti-import measures in 2013 – are expected to rise as Hindu wedding and festival season demand peaks with Diwali, says Prithviraj Kothari, vice-president of the India Bullion & Jewellers' Association, reaching "about 70-75 tonnes per month in the coming months as against a monthly average of 50-60 tonnes."

"The US Fed," Bloomberg quotes analyst Abhishek Chinchalkar at AnandRathi Commodities in Mumbai, "seems to be slowly preparing the markets to gear up towards an eventual monetary-tightening cycle."

"Any rallies [in gold prices] are unlikely to be sustained as we head closer."

Silver extended the drop in gold prices today, hitting $18.31 per ounce as New York markets opened – less than 10c above June 2013's near 3-year low.

"The markets decided that [the Fed news] was good for the Dollar and therefore bad for precious," says David Govett at brokers Marex Spectron in London.

As expected, Wednesday's Fed statement tapered next month's quantitative easing asset purchases to $15 billion, and repeated that the US central bank will then wait a "considerable time" after ending that program before raising rates from zero.

New forecasts of likely rates in 2016 and 2017, however, showed Fed policymakers targeting higher rates than in their June projections.

Meantime in Frankfurt, and launching its latest long-term lending program with $106 billion in cheap loans to 255 banks across the Eurozone, the European Central Bank today changed its policy-making schedule such that Germany – a staunch opponent of QE money creation – will not vote in two meetings in 2015.

Gold prices for Eurozone investors retreated to Monday's 3-month low at €945 per ounce.

UK gold investors saw the price in Sterling also hit 3-month lows beneath £745 as the Pound rose on expectations of a "No" vote in today's Scottish independence referendum.

"Expectations of higher policy interest rates," says a note from London market-making bank HSBC, "is gold-bearish."

Courtesy: www.bullionvault.com