Gold Exhibiting New Trading Cycle

As has been the course all week precious metals gain slightly in the Asian session only to give up gains throughout the trading day. This morning the precious metals added just under $2 to trade at 1082.70. Silver dipped to 14.25 near its lowest point in months while platinum drifted down $2.80 to 875.95 well off its highs above $1015 just last month.  The platinum group metals (PGMs) also tracked gold lower. Platinum tumbled to a near-seven-year low of $867.50 on Thursday, and was eyeing its worst weekly drop in four years. With a near 13 per cent drop, palladium was also headed for its worst week since September 2011.

“While we find physical demand for the PGMs from industrial sources to be broadly steady, investors are retreating and we see no early signs of further production restraint,’’ HSBC analyst James Steel said. “Either a sector-wide rally in commodity prices or tangible evidence of production cuts are required to engineer a rally in the PGMs,’’ he said, adding that gold could also see more losses. Holdings of platinum exchange traded funds (ETFs) are at a two-year low, while assets of palladium funds are at their lowest since April 2014.

Gold is heading for a third annual loss as investors brace for the first interest rate increase since 2006 when Federal Reserve officials meet next month, with New York Fed President William C. Dudley saying the conditions for liftoff “could soon be satisfied.” There’s a 66 percent probability of a move in December, Fed-fund futures data show. Global holdings in exchange-traded products backed by gold dropped to the lowest since March 2009 on Wednesday.

Assets of SPDR Gold Trust fell to 661.94 tonnes on Thursday, the lowest since September 2008. Holdings of all gold funds are at their lowest since March 2010.

Sustained outflows could add to the pressure on the metal prices, already hit by the strength in the dollar. Bullion has been under pressure recently as expectations for a December rate hike in the United States strengthened after a robust nonfarm payrolls report earlier this month.

Fed officials lined up behind a likely December interest rate hike on Thursday with one key central banker saying the risk of waiting too long was now roughly in balance with the risk of moving too soon to normalize rates after seven years near zero.

Many investors and financial-market pundits believe that rising interest rates will weigh down the price of gold.  But, if history is a guide, speculators should expect both rising gold prices and rising interest rates over the next few years, much like the 1970s, which saw the price of gold rise from $35 an ounce early in the decade to over $850 an ounce by January 1980.

The last time the Fed raised interest rates was in 2004 to 2006.  While the Fed funds rate rose from 1.00 % to 5.25%, gold prices soared from under $400 an ounce to over $700 an ounce!