Gold Extends Post-Fed Plunge from ‘Unfathomable’ Spike

…with a Good Buying Opportunity on Weak US GDP Data

Bullion.Directory precious metals analysis 29 October, 2015
By Adrian Ash
Head of Research at Bullion Vault

Only 1 member of the 10-person FOMC voted to raise in October 2015 (again Jeffrey Lacker of the Richmond Fed), and the central bank’s policy statement repeated that a future rate hike remains dependent on incoming data.

New GDP figures today showed that, had the Fed’s preferred PCE measure of inflation held at Q2 levels in the third quarter of 2015, real economic growth in the US would have sunk to just 0.3% annualized.

This drop in gold prices “could present a good buying opportunity for physical buyers in China,” says a note from Swiss investment and bullion bank UBS, “who need to stock up for the Lunar New Year festivities.”

“We believe opportunistic investors who remain sceptical about the global macro environment should also view any weakness ahead as a chance to re-establish positions [in gold] at better levels.”

At July’s new 5.5-year lows in the gold price of $1075, speculative traders in US futures and options cut their “net long” position (of bullish minus bearish bets) to the lowest level since 2003.

With gold then peaking $100 higher ahead of this week’s Fed decision, latest data from US regulator the CFTC showed the “net spec long” jumping to the largest level since February – twice the last 20 years’ average, and swollen by 350% from a month before for the fastest 5-week growth in 13 years.

“[The] high net long positions held by speculative financial investors,” says a note from commodity analysts at German bank Commerzbank, “[meant] the prices of gold and silver would likely come under pressure if the Fed were to signal an imminent rate hike.”

“Some of these net long positions are now likely to have been covered,” Commerzbank believes, with gold prices swiftly falling from above $1180 after media reports said Wednesday’s Fed statement put a December rate-hike “firmly on the agenda“.

Calling yesterday’s earlier rally “unfathomable“, ICBC Standard Bank strategist Tom Kendall today says that “Technically the daily chart still looks okay, just.”

But with heavy trading in put options, however – giving the owner the right to sell at higher prices if gold falls – “I would rather be in the buyer’s shoes than the seller’s,” Kendall adds, expecting further drops ahead.

Silver meantime caught up with the drop in gold prices Thursday, losing its earlier hold on last week’s closing level to trade at a 3-week low of $15.57 per ounce – more than 4% below Wednesday’s sudden spike to 4-month highs.

European stock markets closed the day lower as the single Euro currency recovered half-a-cent of Wednesday night’s 2-cent plunge to 3-month lows at $1.09 on the FX market.

US Treasury bond yields extended their rise, with the interest rate on 10-year debt reaching the highest level in a month above 2.15% per annum.

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