News for those who buy or want to sell their gold jewelry: the yellow metal is back just above $1,200 (up $1,209 only because the stock markets lost ground), after having fallen below this barrier in recent days. The data on employment in the United States has caused prices to fall. Since the American economy is doing well, everyone thinks that the Federal Reserve will raise interest rates before mid-2015. So investing in gold has fewer chances and the prices of ingots are falling. Gold has thus fallen to a minimum of $1,191 on the London spot market: a level it has not reached since December (three years ago it rose to $1,700) and which has brought gold’s performance into the red in 2014. With another negative aspect: those who bought gold jewelry in recent years now have earrings, necklaces or rings in their drawer that are worth a little less. So those who want to sell their jewelry have to resign themselves? Perhaps some purchases in Asia could help gold rise in value. Most analysts, however, are convinced that the trend of gold is down. For now.
For those who see gold as an investment, we publish the confidential report of Nevine Pollini, senior commodities analyst at the Swiss bank Union Bancaire Privée (UBP).
Despite the uncertainty generated by the continuous attacks of the US coalition against ISIS in Syria and Iraq and despite the recent protests in Hong Kong to ask for greater democracy, gold has recently suffered a hard blow, touching the lowest levels since January.
One of the explanations for this sharp decline recorded by the precious metal in the first half of September, coinciding precisely with the listing of Alibaba, is that Chinese speculators have liquidated their positions in raw materials, especially gold, to make room for the IPO. However, we do not give much credence to this theory; we are more likely to believe that the dollar at its highest levels in 4 years – also due to the divergence between the Federal Reserve and the European Central Bank in terms of monetary policy – and the highs recorded by the stock markets constitute a lethal combination for gold prices. The continued improvement in the US economic conditions, moreover, has strengthened expectations regarding a rate hike by the Fed already in the spring of 2015.
The latest Fed meeting was not favorable for gold: despite the central bank having revised downwards the US GDP growth forecast for 2015 and having reiterated that it will leave rates unchanged for “a considerable period of time” (due to concerns about the health of the labor market), the dot plot, which reflects the projections for the future made by Fed officials, includes higher-than-expected fed funds rates, thus widening the gap with current rates.
For the Fed, inflation, now below the 2% target, is weak, as the increasingly strong dollar keeps both import costs and rising consumer prices under control. In fact, in the US, consumer prices fell in August for the first time in a year. The low level of inflation also makes gold less attractive as a hedge against rising prices.
The appetite for investing in gold seems to have weakened: in fact, the demand for investment in this commodity through ETFs continues to decline. Investments in gold ETFs, according to known data, have fallen below the level of 55 million ounces, the lowest in five years, due to high redemptions.
Support from the physical gold market is also weak. In fact, according to the GFMS (Gold Fields Mineral Services) in the Interim Gold Report 2014, physical demand for the current year is expected to fall by 15.9% to 4,174 tonnes, against the record of 4,957 tonnes in 2013. Also according to the report, adding further pressure to the prices of the yellow metal is the weakening of demand from China, due to “more delicate economic conditions” and the crackdown on corruption.
Although trading on the gold market has been rather weak in this first week of October, due to the seven-day Chinese national holiday of “Golden Week”, the demand for gold is now expected to enter a phase of strong demand from the physical market, as we approach the festival of Diwali (October 23), a season of festivities and weddings in India, during which demand for gold is traditionally high.
At the moment, we expect gold to find support around the psychological level of $1,220-1,200 per ounce, although we cannot rule out further corrections towards last year’s lows of $1,180.
