China "Offers Sturdy Floor" in Gold, But US Fed Meeting "Risks Downside"

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PRECIOUS METALS held in a tight range in London on Tuesday morning, moving sideways as world stock markets rose and commodities slipped ahead of the US Federal Reserve meeting, which begins today.

"No outstanding features, volumes fairly light and very little to report,"says broker Marex Spectron.

After telegraphing its intention to start reducing the $85 billion in monthly quantitative easing as soon as September, the Fed will announce its latest policy on Wednesday, soon after the release of official US data for second-quarter GDP.

Gold moved on Tuesday morning barely $4 per ounce above $1322 – the "crash"low of mid-April.

Silver moved just 0.7% around $19.70 per ounce.

"We could see some downside open up," says Standard Bank's commodities team, "if the Fed announces tomorrow that it will stay the tapering course."

Looking at recent bullion price action, "Gold is pushing hard" says technical analysis from Commerzbank "into the 2-month downtrend and the 55-day moving average at $1333/40."

Gold bullion and futures prices "reacted violently in June" Federal Reserve comments on policy, says a note from Bank of America-Merrill Lynch. But now "near-dated gold volatility has been falling in recent weeks.

"After the initial Fed fears lifted 10-year US Treasury rates from 1.6% to 2.7% in just a few weeks, rates seem to have stabilized in a 2.5% to 2.6% range, contributing to a drop in gold vols."

This "normalization" says BAML is now being reflected in gold futures prices. August futures settled Monday below further-dated contracts, confirming what the bank calls gold's "typically contango structure" – whereby prices are higher for delivery further into the future.

But "we are moving closer and closer to tapering,"reckons Tom Tucci, head of Treasury trading at CIBC World Markets, currently with $12bn in assets under management, speaking to Bloomberg.

"With no new news, the risk right now is for higher rates, not lower,"says Tucci, saying 10-year Treasuries should yield around 2.75% "given the state of the economy and the Fed's stance."

The quantity of gold bullion held to back investors' shares in exchange-traded trusts funds was unchanged Monday, remaining 25% lower from the start of 2013 at four-year lows.

Emerging-market central banks "disappointed gold bulls" with their bullion purchases in June, says a note from Swiss investment bank and London market-maker Credit Suisse.

"Reserve asset managers are as unwilling to 'catch a falling knife' as any other fund manager we think," says the note, "and in general are wary of spikes in volatility."

But in China – now the world's second-largest economy, and likely to overtake India as world No.1 gold consumer in 2013 – private household demand for gold bullion"does hold the promise of a sturdy price floor" says a note from fellow Swiss investment bank and London market-maker UBS.

Moreover, "In China banks are setting up and/or growing gold accumulation plans offered to the public. Better and easier access to gold via banks' growing networks combined with strong appetite from retail customers have driven the tremendous appetite from China this year."

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News Source: www.bloomberg.com 

Gold Prices Still Responding To Fed Stimulus...

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Precious metals diverged this morning with gold climbing by $5.25 to trade at 1339.95, and silver has declined by 17 cents to trade at 20.275.  Gold futures declined on profit-booking, marking their first decline in 4-sessions just after the metal’s biggest one-day price gain in more than a year. Prices mostly traded in a range, as investors weighed the US Federal Reserve’s next move on monetary stimulus against the prospects for demand amid higher prices.

A report in Bloomberg yesterday, said that they are expecting the Fed to reduce its monthly asset purchases in September to 68 billion from the current 85 billion. Gold has recovered about $150 from a three-year low of $1,180.71 an ounce hit on June 28, after the US Federal Reserve said it would only start phasing out its stimulus once it was sure the economy was strong enough to stand on its own. This allayed fears of imminent cuts to the Federal Reserve’s monthly bond purchases, which is tantamount to printing money and supports gold’s appeal as a hedge against inflation.

The dollar traded lower against the euro and pared gains against the yen in a thin volume trade on Tuesday, as investors adjusted positions with technical levels in the absence of any economic data to drive direction. The combined government debt of 17-euro zone nations rose to 92.2% of gross domestic product, the highest in its history – in the first quarter of 2013, despite stringent austerity measures deployed in the region since the beginning of the financial crisis.

The base metals complex traded on a positive note as a result of a rise in risk appetite in the global market sentiments. Further, weakness in the US dollar acted as a positive factor for prices.
However, sharp upside in prices was capped on the back of LME inventories scenario and compounded by the scandal in inventory prices and Goldman. The Federal Reserve faces new pressure to explain why it lets banks trade raw materials and control supplies after congressional witnesses said regulators can’t really grasp what lenders are doing in industrial businesses.

Copper prices traded on a positive note in the yesterday’s trade increased around 0.5 percent on the back of decline in LME copper inventories around 0.4 percent which stood at 632050 tons.  Further, weakness in the DX coupled with upbeat global markets supported an upside in prices.


Traders can expect the base metals group to trade on the back of weak global markets. Further, strength in the DX will act as a negative factor. Additionally, a decline in China’s manufacturing data which is at 11-month low will exert downside pressure in prices. However, a sharp downside in prices will be cushioned or reversal can be seen on account of expectations of favorable manufacturing and services PMI data from the eurozone. Markets are expecting to see a climb towards 50 for eurozone PMI’s a miss could see some volatility in the marketplace.

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News Source: www.reuters.com 

Gold hits 1-month high as dollar falls on Fed stimulus-exit prospects...

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Gold prices climbed on Monday tailing a third consecutive gain day as reduced expectations that the U.S. Federal Reserve will soon taper the bullion-friendly stimulus program boosted the metal at the expense of the U.S. dollar.As of 03:16 ET, gold for immediate delivery climbed 1.81 percent, or 23.47 points, to $ 1,317.23 after opening at $1,296.19. Earlier in the session, it hit a high of $1,322.86 and a low of $1,296.00. 

Dollar-governed gold advanced after greenback fell against key rivals as Fed Chairman Ben Bernanke’s comments on stimulus lacked confirmation on when the central bank will start scaling back its stimulus.

Expectations the Fed will pare back its $85 billion-per-month bond purchase program took the toll on bullions. The Fed`s quantitative easing schemes have boosted gold’s appeal as a hedge against inflation.

The dollar index--a gauge measuring the strength of the greenback against a bundle of major currencies--was in a jumble in line with the recent sell-off that started with Ben Bernanke’s dovish comments last week. The USDIX fell on Monday to trade around 82.57 after opening at 82.69, hitting a high of 82.72 and a low of 82.48.

Other precious metals tracked gold higher where:

- Silver gained 2.44% to trade around $ 19.98

- Platinum went up 0.59% to $ 1,438.55

- Palladium inched 0.09% up to $ 750.70

In Japan, Japanese voters handed a landslide victory to the governing Liberal Democrats in parliamentary elections on Sunday. Prime Minister Shinzo Abe was given a solid platform to continue with his aggressive monetary stimulus push to boost the world`s third biggest economy.

By securing control of both houses of Parliament for up to three years, the win offers Prime Minister Shinzo Abe the chance to end their nation’s economic slump. A victory for Abe, whose "Abenomics" program aimed at sparking an economic revival, was widely expected.

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News Source: www.wsj.com 

Bernanke will try to have some cake and will eat it too...

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 Bernanke is really in the hot seat today – both in terms of potential market responses and politically, as lawmakers’ attention directed the US Federal Reserve’s way is becoming increasingly glaring. The first Bank of Canada meeting under new governer Stephen Poloz is also on tap today.

The Bank of Japan meeting minutes overnight drew yawns from the market audience as the rhetorical line seems to be “implement what we have promised and it will take some time to judge the success of our policy” while anticipation is more important on the political front with this weekend’s upcoming Upper House elections. There were minor expression of concern by some members, but the unanimous decision was to stay the course on current policy.

Equity markets finally had a negative day yesterday, after a remarkable string of positive days, and bonds are looking well supported. If Bernanke follows up with more relative dovishness today without asset markets bulling sharply higher, this would appear to be the most USDJPY negative outcome. USDJPY bottomed out – you guessed it – right near the Ichimoku cloud area overnight – triple underlining the focus on this indicator, which has dropped several pips today and is closer to the 98.85 level now.

Looking ahead Bernanke testimony

 

Remember that Fed chairman Ben Bernanke’s full testimony today will be released at 1230 GMT before he actually presents it at 1400 GMT, followed by what is likely to be a very lively Q&A session, with Bernanke in the hot seat as I’m convinced that Republicans are increasingly making it a part of their party platform to remain critical of the Fed as the “Washington enabler”, with the endless irony that it is Republican constituents (the wealthy) that have benefitted the most, relatively speaking, from Fed policy over the last several years.

What the Fed would like to communicate, in my opinion, is that it is ready to act either way depending on incoming data, but that as things stand right now, it would prefer for bond yields to come back down some while it has no interest at all in driving too much exuberance elsewhere. Can it pull this off? If this message is successfully delivered, USDJPY may offer the most volatility.

Meanwhile, a Bernanke reminder that confirms expectations for tapering and leaves the market to take its guidance from incoming data rather than Fed signals would be more clearly USD positive, with trade selection depending on the asset market response (scary drop in equities could still push JPY higher, but EURUSD or GBPUSD might offer a more straightforward strong USD response in this instance).
Regardless of the message Bernanke delivers, the worst potential outcome in the following days would be a brief squirt of USD weakness followed by strong signs of support. If the USD is going to move to the strong side right away on the heels of the Bernanke testimony, I would look to EURUSD and GBPUSD for the most important signs of a reversal.

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News Source: www.cnbc.com 

Gold Prices May Rebound Toward Year's End...

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Gold prices could rebound toward the year’s end as the current headwinds for the metal, selling by exchange-traded-fund investors and concerns about the Federal Reserve tapering its stimulus program ease, said a German bank on Monday.

Commerzbank said that if gold can rebound, that will help silver, too. Platinum and palladium should continue to receive price support from supply risks and strong demand.
They estimated gold prices will average $1,200 an ounce in the third quarter, rising to $1,300 in the fourth quarter and to $1,400 by the first quarter of 2014. By the end of 2014 they see gold prices rising to $1,600.

For silver they see prices averaging $19 in the third quarter, $21 in the fourth quarter and $23 in the first quarter next year. For platinum they see prices at $1,350, $1,425 and $1,500, with palladium prices averaging $675, $700 and $725, respectively, in the third and fourth quarters of 2013 and first quarter of 2014.

Gold prices fell to a three-year low of $1,180 by the end of June, caused by a sharp rise in real interest rates because of speculation about an imminent reduction in the bond purchases by the Fed as part of their quantitative easing program.

Commerzbank said despite the rise in real interest rates, they still remain low. “In the past, real interest rates had to rise to more than 2% over a prolonged period to have a sustained negative impact on the gold price. We do not expect this to happen. After the current phase of adjustment in the wake of the announced scaling back of the Fed's bond purchases, the headwind affecting the gold price should therefore ease from this side,” they said.

They also said that they expect ETF outflows to be limited, even if prices fall further. “Most of the remaining ETF holdings of almost 2,000 tons are likely to be held for other reasons than short-term profit maximization, i.e. mainly to hedge against long-term financial market risks and a loss of purchasing power due to inflation and currency devaluation. These motives continue to apply given the unresolved debt crises, high sovereign debt in the industrialized countries and therefore the continuation of ultra-loose monetary policies by the major central banks,” they said.

If gold prices rise on a sustained basis, “we would also expect silver to pick up again significantly,” they said, citing a rebound in the global economy resulting in greater industrial demand.

The PGMs are likely to be supported by concerns about South Africa and the potential production shortfalls because of simmering conflicts between unions and mines. Demand for PGMs is strong on both the automotive side and from investor demand, they said.

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News Source: www.reuters.com  

Week ahead features Bernanke’s testimony, Beige Book, and corporate earnings...

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This week will feature retail sales, housing and inflation data alongside the Federal Reserve’s Beige Book. Federal Reserve Chairman Ben Bernanke`s will testify before the congress in the semiannual testimony once known as the Humphrey-Hawkins report.

Bernanke will testify before on the House side Wednesday at 10:00 a.m. ET and then on the Senate side Thursday at 10:00 a.m. ET. The remarks come on the heels of the surprising minutes of the last meeting of the Federal Open Market Committee, which showed a more sharply divided Fed on the issue of asset purchase timing than had been previously understood.

The testimony could, however, further clarify where the Fed stands on its expected path for asset purchases following the last employment report, which analysts say all but guarantees a tapering of Fed purchases in September. The Federal Reserve will also release its Beige Book report on the economy Wednesday at 2:00 p.m. ET.

Housing data to be released next week include June housing starts Wednesday at 8:30 a.m. ET and the National Association of Home Builders` July housing market index Tuesday at 10:00 a.m. ET.
Housing starts is currently the most important indicator of where the housing market is headed - supply constraints are currently holding up sales and boosting prices, so more construction is really the only way the market can move forward. Both higher construction starts and building permits are forecast for the month.

June`s retail sales report, to be released Monday at 8:30 a.m. ET, is expected to post another month of modest core sales, right in line with the subdued growth expectations for the second quarter. Gasoline sales will also likely boost the headline.

Regional manufacturing surveys to be released in the week ahead include the Philadelphia Federal Reserve July business outlook survey and the New York Federal Reserve`s July Empire State manufacturing survey Monday at 8:30 a.m. ET. The surveys are expected to dip slightly, though remain positive, after both posted surprise gains in June. Regional surveys, however, are very difficult to accurately forecast.

The June Consumer Price Index will also be released Tuesday at 8:30 a.m. ET, and is expected to show another modest gain in core prices. Inflation data has taken a back seat to jobs data as far as the Federal Reserve is concerned, but any further declines in the year-over-year rate could change the discussion. Initial jobless claims, to be released Thursday at 8:30 a.m. ET, should likely be disregarded due to the noted seasonal adjustment difficulties in the month of July. Department of Labor officials said the surprise jump to 360,000 in the last release is likely due to this seasonal volatility.

Other data to be released over the week include June industrial production Tuesday at 9:15 a.m. ET, June Treasury International Capital flows Tuesday at 9:00 a.m. ET, June business inventories Monday at 10:00 a.m. ET, June leading economic indicators Thursday at 10:00 a.m. ET, and the Mortgage Bankers Association`s mortgage applications index Wednesday at 7:00 a.m. ET.

Earnings

Wall Street is quietly optimistic given earnings forecasts have been knocked down quite substantially in the lead-in, suggesting the potential for upside surprise. After JP Morgan (Dow) and Wells Fargo Friday, next week we`ll see Dow components Johnson & Johnson, Coca-Cola, American Express, Bank of America, Intel, IBM, Microsoft, Verizon and General Electric along with Goldman Sachs, Yahoo, Google and Morgan Stanley.

Dell Inc. shareholders will vote on the proposed $24.4 billion buyout of the personal-computer maker by founder Michael Dell and Silver Lake Management LLC.

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News Source: www.marketwatch.com  

Crude Oil Fundamentals Should Push Prices Down...

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Crude oil prices hit a 15-month high point yesterday, boosted by signs of strengthening demand in top consumer the United States and ongoing supply fears linked to violence in Egypt. The New York’s main contract, WTI for delivery in August, spiked to $107.45 a barrel a level last seen in late March 2012. It later stood at $106.02, down 50 cents from Wednesday’s closing level. Crude futures had already scored multi-month highs on Wednesday after the US Energy Information Administration’s weekly crude stockpiles data indicated a major pickup in energy demand.


The EIA said crude oil stockpiles tumbled by 9.9 million barrels in the week ended July 5. That was more than triple the 2.9-million-barrel drop expected by analysts polled by Dow Jones Newswires, and followed the prior week’s drop of nearly 10 million barrels. Traders remain deeply concerned over potential disruption in Middle East supply following the overthrow last week of Egypt’s Islamist president Mohamed Morsi by the military. Egypt is not a major crude oil exporter but is home to key oil transit points of the Suez Canal and the Sumed Pipeline.

It was inevitable that WTI prices would climb just as operators increased pipeline capacity, easing the supply glut in Cushing, Oklahoma, where physical oil demanded from NYMEX WTI futures contracts gets delivered and sent on to refineries. BP also recently restarted full operations at its refinery in Whiting, Indiana, which boosted demand, and imports have been constrained after flooding in Canada. But the latest spike is already proving short lived, because the U.S. continues to pump out shale oil like never before. Production is now 16% higher than where it was a year ago. Traders should expect to see prices decline as production and inventory climbs.

Crude oil prices fell sharply, after International Energy Agency projected increased supply from sources outside the Organization of Petroleum Exporting Countries, which could outstrip demand. The IEA forecast showed, supply from non-OPEC countries to grow 1.3mn barrels per day next year, with supplies to rise 1.2mn barrels per day this year. The agency also lifted its global oil demand forecast for 2013 and the same is expected to grow by 1.2mn barrels per day in 2014.


Natural gas futures fell from its day’s high, after a weekly government report showed that US gas supplies are rising faster than normal for this time of year. Natural gas is trading at 3.608 easing 4 points this morning and continuing with a negative bias. The US Energy Information Administration said 82bn cubic feet of gas were injected into storage last week, much higher than last year’s 34bcf build for the same week and above the 5-year average injection of 74bcf for the week.

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News Source: www.wsj.com