NEW YORK (Scrap Register): Prices faced significant downward pressure on the last day of the month following a less dovish FOMC meeting than expected, said Barclays Capital in a research note. 

 

As the dollar strengthened to two-week highs against the euro, US 10y Treasuries edged higher but equity markets retained their gains. Our economists note that while tapering at the December meeting remains a possibility, they believe the data are unlikely to take a sufficiently strong turn by then to justify that; they maintain their view that the Fed will reduce the pace of asset purchases to $70bn per month in March 2014.

 

The CFTC has now released the Commitment of Traders report for the week ending 15 October, which in line with the open interest data shows a build in gross short gold positions, taking net fund length and gross shorts to a one-month high and low, respectively. Comex silver and Nymex palladium non-commercial positions have also fallen, similarly due to a build in gross shorts, while Nymex platinum net fund length eased due to long liquidation. 

 

However, the most notable move was in gold. Even though last week witnessed the largest daily increase in gold ETP holdings since January, it proved to be a blip, with outflows resuming thereafter. Net redemptions have reached 47 tonnes, more than the outflows over the past two complete months, while total metal held in trust has reached a fresh May 2010 low. As we highlighted last week, the floor for gold prices remains fragile, particularly in light of the weaker-than-normal seasonal buying in India, Barclays added.

 

Despite the festival of Dhanteras (deemed to be an auspicious day to buy gold) falling on 1 November, numerous jewellers have reported a slow Diwali season (Times of India). Purchases of diamond set pieces, silver pieces and lighter gold sets have seen stronger interest, and even though the state-run company, STC, has been allocated an import allowance of 6 tonnes, local dealers have cited tighter regulation as the driving force behind subdued demand and the shortage of metal pushing local premiums higher. On the supply side, in line with the recent reporting, Barrick, the largest gold producer, reported Q3 13 gold production of 1.8Moz, which is up 2% q/q but down 3% y/y. The company now expects full-year gold production to be at the low end of its 7.0-7.4Moz guidance. 

 

Meanwhile, it recently lowered its all-in sustaining cash costs guidance from more than $1000/oz to $900-975/oz, as well as its adjusted operating cost from over $610/oz to $575-600/oz. Q3 13 average operating costs were $756/oz, up 2-3% q/q and y/y, while all-in sustaining costs were $916/oz. The latest silver producers to report Q3 13 production continue the relatively steady production trend so far this year, at least considered as a whole. At GlencoreXstrata, total silver production from its own mines rose to 9.7Moz, up 15% q/q and 12% y/y. Goldcorp also reported Q3 13 silver production of 7.7Moz, which is up 8% q/q but down 9% y/y; the q/q increase was mainly due to higher grades at its Marlin and West Vero operations, but grades did fall elsewhere. Meanwhile, BHP Billiton reported Q3 13 silver production decreased 23% q/q and 6% y/y to 8.7Moz. The fall was largely attributed to lower average ore grades at its Cannington operations. In our view, silver mine supply remains healthy and is set to keep the balance in surplus given only modest improvements in industrial demand towards the end of the year, Barclays concluded.