Gold Swings Faber Waits

September 19, 2013 at 09:41

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Gold fluctuated between gains and losses after jumping the most in 15 months as the Federal Reserve unexpectedly refrained from reducing the pace of monthly bond purchases. Silver, platinum and palladium advanced.

Gold for immediate delivery rose and fell as much as 0.4 percent before trading at $1,364.42 an ounce at 2:40 p.m. in Singapore, taking this week’s gain to 2.8 percent. Prices added 4.1 percent yesterday, the most since June 1, 2012, rebounding after a drop below $1,300 for the first time in six weeks.

The Federal Open Market Committee “decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” according to a statement yesterday at the conclusion of a two-day meeting. Gold, which fell into a bear market in April, lost 19 percent this year after a 12-year rally as investors made record sales from exchange-traded products on expectation the Fed would cut stimulus as the economy improves and inflation remains subdued.

“My view was that they would taper but I’m not surprised that they don’t do it for the simple reason that I think we are in QE unlimited,” Marc Faber, publisher of the Gloom, Boom & Doom report, said. “The markets are overbought. I’m a little bit apprehensive. I’d like to wait a few days to see how the markets react after the initial reaction which was to pile into everything.”

Futures for December delivery on the Comex in New York traded at $1,364 an ounce, up 4.3 percent from yesterday’s settlement of $1,307.60 before the Fed announcement. Trading on the Comex today was 10 percent below the average for the past 100 days, according to data compiled.

Goldman Sachs Group Inc. said the Fed’s decision “leaves risks to gold prices as skewed to the upside in the near-term.” The bank restated its prediction that prices will resume a drop into 2014 on U.S. economic growth and less accommodative monetary policy, analysts Damien Courvalin and Jeffrey Currie wrote in a note dated yesterday.

Analysts were divided on the amount by which policy makers would scale back monthly asset purchases. Among 64 economists surveyed by Bloomberg News before the announcement, 33 predicted the Fed would reduce buying of Treasuries by $5 billion or less, while 31 forecast a cut of $10 billion or more. The Fed said yesterday that it needs more evidence of lasting improvement in the economy and warned that an increase in interest rates threatens to curb the expansion.

Gold, which reached a record $1,921.15 on Sept. 6, 2011, surged 70 percent from the end of December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by purchasing debt. Prices fell 14 percent in two days through April 15, the worst slide since 1983, before rebounding as the rout spurred coin and jewelry demand from the U.S. to China.

Holdings in ETPs backed by the metal have fallen 26 percent from an all-time high of 2,632.5 metric tons on Dec. 20, erasing more than $54 billion of market value. Mining companies reported at least $26 billion in writedowns this year.

The jump in gold triggered gains in related equities. Newcrest Mining Ltd., (NCM) Australia’s biggest gold producer, surged 8.7 percent to A$13.02 in Sydney, trimming this year’s loss to 41 percent. Zijin Mining Group Co. (2899), China’s biggest gold miner by market value, jumped 6.6 percent to HK$1.95 in Hong Kong, paring this year’s decline to 36 percent. China’s markets are shut for holidays today and tomorrow.

Gold futures in New York came within three percentage points of entering a bull market on Aug. 27 as the threat of U.S. military action against Syria boosted demand for a haven. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose the most in three weeks yesterday. The dollar fell to a seven-month low against a basket of 10 currencies today.

In the week ended Sept. 10, the net-long gold position held by hedge funds and other large speculators fell 16 percent to 84,929 futures and options, U.S. Commodity Futures Trading Commission data show. Long holdings dropped 10 percent, the most since December, and short bets increased 9.8 percent.
Silver for immediate delivery gained 0.5 percent to $23.062 an ounce after soaring 5.5 percent yesterday. Platinum rose 0.4 percent to $1,470.89 an ounce and palladium increased 0.3 percent to $720.85 an ounce.

“The markets have been trading based on some sort of reduction of the Fed buying bonds and mortgage-backs,” Michael Cuggino, who manages $12 billion at Permanent Portfolio (PRPFX) Family of Funds Inc. in San Francisco, said by phone. “What this does for all those people that are expecting tighter money quick, it’s going to cause them to reassess their portfolios and strategies for next 6 to 18 months. Time will tell as to what the longer-term effects on the marketplace are.”