US Gold Investing Flows ‘Driving Price’ As Fed ‘Dove’ Calls For Rate Hike by Adrian Ash

GOLD INVESTING prices retreated with world equities, commodities and government bond prices Friday in London, slipping to 3-day lows of $1344 per ounce against a rallying US Dollar but holding on track for 0.8% weekly gains after a formerly ‘dovish’ US Fed president warned of “growing risks” from a further delay in raising interest rates.

Previously called “a solid dove” in favor of keeping rates low, “There are longer-term risks… compounded if delays in tightening earlier [then] require more rapid increases later in the cycle,” said Boston Fed president Eric Rosengren in a speech in Massachusetts.

Crude oil dropped 2% for the day and silver prices shed the last of this week’s previous 3.5% gains – dropping back to $19.45 per ounce – as the EuroStoxx 50 index lost 0.5% from last Friday.

Ten-year US Treasury bond yields rose to the highest level since the UK’s shock Brexit referendum result in late June at 1.65%.

Betting on US Dollar interest-rate futures today put the likelihood of a hike at the Federal Reserve’s September meeting in 2 weeks’ time up to 27% from 18% yesterday.

US Gold Investing

“Tighter US monetary policy is still a key risk” for gold investing says Tom Kendall, head of precious metals strategy at Chinese-owned investment and bullion bank  ICBC Standard Bank in London, but after the recent run of weaker economic data “the risk has been deferred to December, or more likely Q1 2017.”

Finding “few reasons to be short” of gold or other precious metals right now, Kendall’s latest quarterly outlook predicts “some upside but no fireworks” for the bullion market.

Contrasting gold investing with consumer demand, this year’s strong price gains to date remain “indebted” to US money managers, ICBC Standard’s chief precious metals strategist warns, risking a sharp price drop if investing flows reverse, especially from exchange-traded trust fund vehicles.

Analysis from investment and bullion market-making bank Societe Generale this week said a drop in ETF holdings – driven by shareholder selling – would take gold prices back towards late-2015’s six-year lows if 2016’s inflows were entirely reversed.

Surging at the fastest pace since 2009, “Monthly changes in ETF flows have far exceeded the rate of Chinese gold imports for much of this year,” adds Kendall at ICBC Standard Bank.

But “with the Indian [jewelry] market slowly normalising and the risk of a US rate rise rapidly diminishing again,” he concludes, “we continue to expect gold to break the $1400 level sooner rather than later.”

After China reported stronger-than-expected imports for August and only a 2.8% drop in exports – the slowest annual fall since April – new data today said consumer-price inflation in the world’s largest gold-buying nation eased to 1.3% last month, the slowest pace in well over a year.

Germany’s exports sank 10% year-over-year in July, while France’s industrial output shrank 0.6% from June but its government budget deficit widened.

The Euro erased half of this week’s earlier gains on the FX market, pushing prices for currency-union savers wanting to start gold investing back up to last Friday’s finish at €1188 per ounce.


Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London’s top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian’s views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany’s Der Stern and FT Deutschland; Italy’s Il Sole 24 Ore, and many other respected finance publications.

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