Gold recovers but remains on track for historic losses

The gold price ended on a positive note for the first time in eight sessions yesterday but gloom continues to hang over the troubled industry.

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Gold for December delivery on the Comex division of the New York Mercantile Exchange crept up by 40 cents to close at $1,088.10 per ounce. Trade ranged from $1,087.40 to $1,094.90.

Trading remains tame as investors await clearer signs on US monetary policy, according to the Bullion Desk. Recent data suggests that the US economy is improving, but the long-term picture remains cloudy.

Boris Mikanikrezai, an analyst at FastMarkets, said: “We believe that the sharp weakening in gold prices was the result of growing Fed tightening expectations. While we remain bearish toward the metal in the near term, we do not rule out short-term brief rallies, triggered by disappointing US data releases.”

Although the small increase in prices yesterday was welcomed, the precious metal remains on track for its third-straight year of losses, says Mining.com. The last time gold dropped in value for three consecutive years was between 1996 and 1998. This time, industry commentators warn that prices may fall even further.

Gina Sanchez of Chantico Global told CNBC that gold “hates” a recovering economy, higher interest rates and a stronger dollar. “Those are all three things we can expect,” she said.

Prices hit a three-month low on Friday, prompting analysts to predict further losses.

Gold price hits three-month low – and could fall even further

9 November

The gold price tumbled on Friday, conforming to type in the face of a surge in expectations of an increase in interest rates by the Federal Reserve.

The latest non-farm payroll numbers on Friday show that the US economy gained 271,000 jobs in October, well ahead of both the 182,000 jobs expected by analysts and the 200,000 benchmark for healthy labour market growth. In an unexpectedly strong showing, the Wall Street Journal reports that the unemployment rate in the US fell to five per cent, while wages rose by 2.5 per cent on an annual basis, the best figure since 2009.

With Fed officials already talking up the possibility of a December rates rise, as well as focusing their attention on jobs and growth at home, the report is seen as a sign that an increase is a likely prospect. Investors initially predicted a 50:50 chance of rates being raised next month but they are now putting the chances at 70 per cent.

Rates rises boost income-generating assets but hit non-yielding commodities like gold. The precious metal also suffers when the dollar rises, as this increases the cost of buying for overseas investors.

The gold price fell from $1,107 an ounce on Friday morning to $1,084 at one point, before consolidating slightly and ending the New York session at around $1,087. Last week, it dropped by five per cent overall, its worst performance in two months, and it is now only slightly above its lowest closing price in five years of $1,084 in August.

Analysts reckon that the only way from here is lower in the near term. The think tank Capital Economics told the Financial Times that gold could drop to $1,050, “consistent with a two-year US Treasury yield of 1 per cent”. If rates do increase next month, expectations are for the metal to move towards $1,000 or less.

Where gold goes from here is far from clear. Some analysts reckon it could plunge even lower – perhaps down to $800. Others reckon that once rates begin to normalise, the focal point could switch to the high physical demand for gold and low stockpiles, in which case the price could begin to recover.

If a rates rise fails to materialise next month in spite of current forecasts, we can expect a short-term bounce back of above $1,100 an ounce.

Gold price could head back to five-year low

6 November

The gold price could be set to return to the five-year lows of this summer, as markets await a US jobs report later this afternoon that will give further clues on whether the Federal Reserve will increase interest rates next month.

Last week, the US central bank published its latest decision to hold rates following a vote at its October meeting, but struck a more hawkish tone by failing to allude to the risks to the global economy and talking up the possibility of domestic demand and employment growth. Gold, which tends to fall as rates rise because it becomes less attractive relative to income-generating assets, fell sharply as a result.

This week, the Federal Reserve chairwoman Janet Yellen gave an even stronger hint that rates could rise next month, telling a congressional committee that domestic signs were positive and explicitly stating an increase next month was “in play”. After six straight losing sessions, gold plummeted to $1,107 an ounce on Wednesday, six per cent below where it had been before the rates announcement.

The gold price hit a low of $1,085 in August. The Fed has said it is watching jobs data closely to determine its December decision, making a non-farms payroll report due this afternoon critical. If this proves to be positive, as the market expects, gold is likely to fall sharply again and could re-test this low. The price is currently steady at below $1,108.

As Mining.com notes, adding to the chances of a “dramatic” reaction from gold is the fact that hedge funds and other institutional investors have built up big ‘long positions’ – meaning bets that the gold price will rise – in recent weeks. This means a sell-off could be sharp and its effect on prices severe.

Expectations are for the data today to show the US added 179,000 jobs last month, up from 142,000 in September, and for the unemployment rate to be unchanged at 5.1 percent. If this forecast is beaten – or even just met – then gold is likely to fall. If the data comes in low this could prompt a rise, but the feeling is the miss would have to be wide.

Tom Kendall at ICBC Standard Bank told the Bullion Desk that upward revisions “could open a trap door at $1,100 for gold”. He said a “data disappointment would have to be sizeable to get the metal back over $1,135 in the short term.