A week in gold: Little change as two-way pull continues

May 11, 2014

Frankfurt (May 11)  A show of Russia’s military strength at its Veterans’ Day parade served as reminder of the dangers of the situation in Ukraine, but did little for gold.

The spot price tumbled during the week as Vladimir Putin called for independence votes by pro-Russian separatists to be delayed. But with referendums set to go ahead at the weekend there was still plenty of safe haven support for the metal, said traders.

As well as the conciliatory noises from the Russian president, gold was knocked by a pick–up in the dollar following comments from Fed chair Janet Yellen after this week’s meeting of the US central bank’s interest rate committee.

Gold and the US currency traditionally move in opposite directions and the dollar strengthened after Yellen said the recovery in the US economy was enough to warrant further reductions in the stimulus measures.

The Fed’s bond buying programme is now running at US$45bn per month having been reduced by US$10bn in each of the last four meetings.

An indication on Thursday that the ECB was ready to ease its monetary stance next month to boost a flagging European economy also helped the dollar, which could rally further against the euro if Europe’s central bank acts.

Key to the price this year has been the slowdown in the selling of gold through exchange traded funds (ETFs), but this trend started to reverse a week ago and though SPDR, the largest gold –backed ETF held steady over the past few days traders suggest a return of selling would hit gold hard.

More than 800 tonnes of gold went out of ETFs in 2013, an outflow that contributed enormously to the 28% slump in the gold picce during 2013.

Daniel Morgan, a commodities analyst at UBS, suggested that gold is in a “trend decline” and will fall  further over the rest of the year.

Speaking to CNBC he said people were getting comfortable again over prospects for the US economy, which will be bearish for gold.

Some comfort for the gold bulls has come from signs that once gold goes below US$1,300 physical demand kicks in.

Standard Bank’s Walter de Wet noted this week premiums in Singapore moved back into positive territory.

While still well short of the premiums of more than $10 seen in January and February, it marked a recovery from the discount of more than $5 in March and April, he said.

“Although the pick-up in demand is not as strong as in January and February, the improvement does signal the sensitivity of Asia physical demand to the current price level,” though he adds the gold price would have to move lower before Asia demand can improve substantially."

Spot gold was US$4 higher at US$1,293 ahead of the start of trading on Wall Street Friday

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