Bullion Extends Post-Fed Jump as Equities Slide, Yellen Blew Chance for Lift Off

By  Paul Ploumis 18 Sep 2015  Last updated at  19:33:21 GMT

EDGWARE (Scrap Monster): Bullion prices extended their surge Friday in London, reaching 2- and 3--week highs as world stock markets fell hard following the US Fed's decision not to raise Dollar interest rates as previously forecast.

Gold bullion touched 3% gains for the week at $1140 per ounce as New York equities dropped 1.4% at the open, while silver touched $15.42 – up nearly 5.5% from last Friday.

The Euro meantime cut its earlier jump to 3-week highs vs the Dollar on the FX market, helping the gold price in Euros recover to €1000 per ounce after dipping below that level for the third time this year.

Forecasting a swift test of the multi-year Dollar price downtrend – now coming in around late August's high of $1170 per ounce – one bullion bank's sales desk today says "Miners are on the sidelines, looking and waiting" for higher prices.

"I guess they have a target at $1200 where some chunky [gold producer] hedging could materialize."

For the stock market, in contrast, "The Fed had an opportunity to hike rates and begin to build a cushion," says a note from interest-rate analysts at Bank of America Merrill-Lynch, "should the global slowdown [prove] severe.

But now "the rumbles of never being able to increase rates will become even more exaggerated...Expect there to be more market volatility, more uncertainty [and] therefore more downside risk."

Bullion market analysts were however more circumspect about financial risk Friday, with London brokerage Marex Spectron saying "The world is exactly the same as it was yesterday, so quite frankly there is no massive reason to get overly bullish of the precious complex.

"At some point in time the US will raise rates and as such the upside for gold will continue to be limited."

"This decision has not altered our view," agrees Dutch bank ABN Amro. "We remain negative on gold [because] the Fed will start its tightening cycle this year or early next. 

"Investor demand [for gold] is mainly driven by sentiment in financial markets [and] if the Fed eventually hikes in December, as we expect, then the US Dollar and yields should move up.

"We expect jewellery demand from India and China to increase," ABN adds, "but this will unlikely compensate for lower investor demand."

On the contrary this week, "Physical gold demand in India is clearly weak," says a note from Germany's Commerzbank, pointing to a discount on local gold compared with world prices in London "already amount[ing] to as much as $10 per troy ounce.

"[This] is surprising given that the [Hindu] festival season is just around the corner."

Premiums for gold in China in contrast – now the world's No.1 consumer market, ahead of the historic leader India – today closed the week $4 per ounce above London quotes on solid trading volumes in Shanghai.

The Russian central bank meantime said Friday it added $1.1 billion of gold to its reserves last month, taking the total to 1,318 tonnes.

Currently the world's 6th largest national holder, Russia was overtaken by China's restatement of gold reserves this summer.

CBR governor Elvira Nabiullina was this week named 'Central Banker of the Year' by institutional investment magazine Euromoney, praising her "shock therapy" of free exchange rates and "dramatic" interest rate hikes in "stav[ing] off a collapse in the financial system" late in 2014.

Courtesy: www.bullionvault.com