Gold Bullion Price Falls from 4-Week High on Bernanke's Tapering Talk

The GOLD BULLION price rose to the best London Fix in 4 weeks above $1297 per ounce on Wednesday afternoon, gaining over 1.0% as testimony on "tapering" QE from US Federal Reserve chairman Ben Bernanke followed weaker-than-expected US housing data.
 
Gold bullion then fell sharply as the US Dollar bounced, dropping towards this week's lows beneath $1280 as Bernanke repeated the Fed's aim of tapering its $85 billion in monthly bond purchases through quantitative easing by the end of 2013.
 
"I think the markets are beginning to understand our message," said Bernanke during Q&A with lawmakers in his semi-annual testimony to Congress. "The volatility has obviously moderated."
 
But tapering QE is not "a preset course," he said, adding that economic data will decide the central bank's actions.
 
June figures for new building starts and permits both showed a marked decline for May, defying analyst forecasts for a rise.
 
"We continue to consolidate in a $1270-1300 range" for gold bullion, says a note from Swiss refinery and finance group MKS.
 
"The last 3 daily candles," says bullion bank Scotia Mocatta's technical note, "can be characterized as 'spinning tops' which have a low range from open to close, and are a sign of indecision in the market."
 
Gold bullion prices are "seen remaining under pressure," says fellow London market-maker Societe Generale's latest Commodity iWatch, "on expectations of Fed tapering, rising [interest] rates, stronger US Dollar and investor selling."
 
The Dollar had earlier held steady Wednesday against the Euro, but dropped 1.5¢ vs. the British Pound after minutes from the Bank of England's latest policy meeting showed a unanimous vote under new governor Mark Carney to keep rates and QE unchanged.
 
That plus the price drop during Fed chairman Bernanke's QE tapering testimony knocked the price of gold bullion for UK investors back to a 4-session low of £844 per ounce – down 1.6% from Tuesday's near 4-week highs.
 
"The Fed's bifurcated message [on rates and QE] will continue," Bloomberg today quotes Barclays' senior US economist Michael Gapen.
 
"Their outlook is for an environment where we can start tapering -- so a hawkish tone on tapering switching to a dovish tone on rate hikes."
 
"The unwinding [of QE] needs to be carefully phased, planned, communicated," said International Monetary Fund chief Christine Lagarde at a central-bank conference in Bucharest on Tuesday.
 
Policy makers should play a "much more subtle game," she said. Because after proving "a massive positive" for the global economy, the effect of removing QE "remains to be seen."
 
Voting policy-maker Esther George – president of the Kansas City Fed – said to Fox Business on Tuesday that starting to reduce QE could likely begin "going into 2014."
 
Meantime in Asia today, gold bullion premiums over and above international benchmark prices held strong, Reuters reports.
 
Hong Kong premiums held near $5 per ounce, while gold bullion dealers in Tokyo blamed a growing shortage of supplies for Japan's $2 premium.
 
Chinese prices for immediate delivery of gold bullion eased back, however, with the premium over benchmark London settlement dropping to $25 per ounce on the Shanghai Gold Exchange, down from last week's $30 level.
 
In India, in contrast – the world's No.1 consumer nation – "Demand [for gold bullion] will be less as there are so many restrictions on import of raw materials," says Haresh Soni, chairman of the All India Gem & Jewellery Trade Federation.
 
"A lot of buying took place in April and May. Investment demand is also weak."
 
Silver prices were little changed with gold in London trade Wednesday morning, holding in a tight range around $19.90 per ounce.
 
Other commodities were also unchanged. Major government bond prices slipped, however, nudging 10-year US Treasury yields up to 2.55%.
 
With longer interest rates rising as tapering talk continues, short-term rates remain held at zero, and the gap between 2-year and 10-year Treasury yields has widened since May to the highest level since summer 2011.
 
So while "it seems as though the Fed is considering tightening with the ‘taper’ talk," writes Gary Tanashian in his Notes from the Rabbit Hole, "in reality it is laying the groundwork for the next phase of the ongoing inflation operation."
 

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Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.

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