Gold Retraces 50% Of Both Summer '13 and 2008-2011 Gains Ahead Of Fed Vote

The WHOLESALE price of gold halved an early 1.5% rally lunchtime Tuesday in London, dropping back to $1315 per ounce as world stock markets fell ahead of tomorrow's long-awaited US Federal Reserve decision.

Silver reversed all of an earlier 1.8% climb, falling back below $22 per ounce.

UK and Eurozone government bonds slipped in price, but US Treasuries rose – pushing interest rates down for a fifth session – after new data said US consumer prices rose less quickly than analysts forecast in August.

The Dollar slipped back as CPI showed a rise of 1.5% year-on-year, but it held the Euro below Monday's 3-week highs.

Sterling traded half-a-cent beneath yesterday's new 2013 highs, capping gold for UK investors below £830 per ounce.

"Our US economists' expectations for a 'dovish' taper," says a note from Goldman Sachs analysts, "[plus] gold's recent decline will likely limit the downside to gold prices heading into the September FOMC."

The Fed will tomorrow cut $10 billion off its current monthly quantitative easing program of $85bn in bond purchases, a Reuters poll of economists says.

Betting on the futures market, however, says the US central bank is now likely to keep interest rates near zero for longer, with prices giving odds of only 55% to a first hike in December 2014.

But "in the past couple of weeks," says Commerzbank chart analyst Axel Rudolph, the price of gold "has reasserted its downtrend."

Late Monday's low of $1304 was near both a "50% retracement of the June-to-August rally...and also [a] 50% retracement of the 2008-11 advance," on Rudolph's charts.

"Failure at the August low [$1272] will confirm that another interim top has been formed [putting] the 1200/1100 region back in play."

"Price action remains weak," agrees chart analysis from Scotia Mocatta's dealing team, pointing to resistance at $1348 and support at $1273.

Gold investment "is in bear market," says a note from Credit Suisse analysts, "in which rallies should be sold.

"[This is] not a bull market that is just taking a nap."

Gold Eagle coin sales from the US Mint are on track for the slowest September in five years according to online data, and are running at just 20% of this month in 2012.

Figures for Silver Eagles, in contract, are running equal to last September's strong sales.

Gold needed to back exchange-traded funds meantime remained steady on Monday, with the giant SPDR Gold Trust's ETF holdings staying at 911 tonnes – two tonnes above August's four-and-a-half-year low.

Over in India – where the central bank today imposed new rules on India's gold loan industry – "Fresh buying is not happening," Bloomberg quotes Haresh Soni of the All India Gems & Jewellery Trade Federation, "because there is a liquidity crunch and consumer spending has come down."

The current festival season, which peaks with Dhanteras and Diwali in November, typically sees the peak for India's gold investment and jewelry demand.

But thanks to the weak Rupee, plus high domestic prices caused by the government's fight against gold imports, "Some consumers are delaying purchases for marriages until prices stabilize," says Soni.

To try and fight gold smuggling spurred by 10% import duties and other blocks on legal flows, India's Directorate General of Revenue Intelligence "has sounded an alert to all international airports and other transit points," reports the Times of India today, "[to] check smuggling of gold."

Adrian Ash

(c) BullionVault 2013

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