Syria crisis is 'averted', Fed tapering looms on precious metals

LONDON (Sept 11)   WHOLESALE bullion prices bounced on Wednesday from new 3-week lows as the US cancelled a Congressional vote on Syria, and traders pointed to next week's expected "tapering" of quantitative easing by the Federal Reserve.


Oil prices and other commodities also stemmed this week's drop. World stock markets rose sharply.


Trading volumes were "thin", bullion dealers said, with one calling the markets "very quiet" but other reporting "some light physical interest" from Asian stockists as prices fell.


"Syria for now remains a lingering underlying bullish factor" for gold and silver," says a note from Swiss refining and finance group MKS. 


"But with each passing day that will play a smaller component in propping the market up." 


"For the time being at least," agrees David Govett at brokers Marex, "the Syrian crisis is averted, [so] the 'war premium' has gone" from gold prices.


"Now...most people are looking for some sort of quantitative-easing tapering" at next week's US Fed meeting.


Noting that gold "started to decline with the declining probability of a military intervention" in Syria, analysts at investment bank Goldman Sachs now say "The September FOMC meeting, where our economists expect a tapering of QE3, could prove the catalyst to push prices lower."


Over the next 12 months, precious metals could drop a further 15%, Goldman Sachs says, advising its clients to go "underweight" the entire commodities complex.


Fellow investment bank J.P.Morgan in contrast recommended going "overweight on commodities" last week, BusinessWeek notes, thanks to rising demand from China, plus better manufacturing data worldwide.