GOLD PRICE ON FED ROLLERCOASTER RIDE / THE FINANCIAL TIMES

Gold price on Fed rollercoaster ride

Henry Sanderson

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©Bloomberg

 

 

Gold dropped to its lowest in five years on Thursday in volatile trading before rebounding sharply, as the market eyes a rate rise by the Federal Reserve.

 

Spot gold hit $1,074.26 a troy ounce in early afternoon trading, its lowest since February 2010, but later rebounded to almost $1,080. On the Comex gold futures exchange in the US $500m of gold changed hands in one minute.

Financial investors have soured on the precious metal, with holdings in the largest gold-backed exchange traded fund, SPDR, falling this week to their lowest levels since September 2008 when Lehman Brothers collapsed.
More than $8.5bn has been withdrawn from gold ETFs this year, according to data from Bloomberg. Demand for gold ETFs fell to 65.9 tonnes, worth $2.4bn, in the third quarter — the worst performance this year, according to a report on Thursday from the World Gold Council, an industry body.

Strong US jobs data last week increased the certainty that the Fed will raise interest rates this year, which is likely to be bad for gold. The metal provides no yield, so buying other financial assets is more attractive.

“We believe that gold is likely to remain under pressure until the Fed actually makes a move,” said Seamus Donoghue, chief executive at Allocated Bullion Solutions in Singapore.

Retail demand was likely to remain solid for the rest of the year, driven by consumption in India and retail investment in China, but this had provided little support for the gold price in recent months, he said.

Gold fell to $1,077 a troy ounce in July, which drove buying by retail buyers. Searches for “gold jewellery” on Taobao, a Chinese online sales platform, trebled in late July before falling back sharply when the price rose in August, according to the WGC.

Retail investors had driven a surge in demand for gold bars and coins in the third quarter, it said in its report. Global gold demand rose 8 per cent in the quarter to $40.5bn, its highest level since early 2013.

The rise was especially strong in the US, where retail demand for bars and coins was 200 per cent higher than in the quarter last year. Gold Eagle coin sales by the US Mint were at the same level as at the end of 2008, during the global financial crisis.

Such buying signalled a level of price awareness “on a par with that of Indian and Chinese retail investors”, the WGC said. Total US retail investment in the quarter was 32.7 tonnes, worth about $1.18bn.

European retail demand for bars and coins also had its strongest third quarter since 2011. For the first nine months of the year, Europeans have bought 165.9 tonnes of gold, up 20 per cent on the previous year.

Eastern Europeans had increasingly bought gold amid tensions with Russia over Ukraine, the WGC said.