Gold Prices Flirt with $1300 as Yellen Moves to Chair US Fed

GOLD PRICES dipped below $1300 per ounce for the first time in 1 week Wednesday afternoon in London, dropping 2.6% from yesterday's high after news broke that Janet Yellen is set to lead the US Fed when Ben Bernanke steps down as chairman in February 2014.
 
The US Dollar rose, and European shares fell into the red for the day after earlier recovering losses. US stocks also dropped.
 
Commodities ticked lower, as did major government bonds. Short-term US debt set to mature this month, after the October 17th debt ceiling deadline, fell hard to drive T-bill yields higher again to 0.36%. They were negative as recently as late September.
 
Silver followed gold prices down after the news on Janet Yellen, but retained a 10 cent gain for the week so far.
 
"[Gold prices] continue to hang in limbo," noted a Singapore trading desk earlier, "unable to rally yet does not want to give up $1300 handle."
 
"Sentiment has changed. People don't seem to be flocking to gold, even in times of distress," said Jim Iuorio, managing director of TJM Institutional Services in Chicago to CNBC on Tuesday.
 
Currently Federal Reserve vice-chair, Janet Yellen is a renowned "dove" on low interest rates and stronger quantitative easing. Sources quoted by several US papers today said she is set to be confirmed as President Obama's choice to succeed Ben Bernanke as Fed chief.
 
"The closer the US comes to reaching its debt ceiling," say commodity analysts at Commerzbank in Germany, "and the more the risk of insolvency grows as a result, the more gold should be in demand as a safe haven in the west...which should be reflected in climbing gold prices.
 
"Perhaps the gold price will be shaken out of its lethargy when the Fed minutes are published this evening," says the bank, asking if the delay in 'QE tapering' last month was due to the US central bank's fears over a drop in government spending.
 
But "once we get past this stalemate in Washington, precious metals are a slam dunk to sell," reckoned investment bank Goldman Sach's head of commodities research Jeffery Currie, speaking Tuesday at Commodities Week here in London.
 
Selling gold is his top raw materials trade for 2014, a view agreed Tuesday by Swiss investment and bullion bank Credit Suisse's research chief Ric Deverell.
 
"You have to argue that with significant recovery in the US," said Currie, "tapering of QE should put downward pressure on gold prices."
 
Economic growth in the UK is set to outstrip the US in 2013, the International Monetary Fund said Tuesday, adding that it was "pleasantly surprised" by Britain's 'austerity' policies failing to hurt growth as the IMF warned in April.
 
UK manufacturing and industrial output today showed a sharp drop for August, defying analyst forecasts of strong growth.
 
The Pound fell hard after the news, dropping to a 2-week low beneath $1.60. That buoyed gold prices for UK investors above £820 per ounce, some 0.8% below an earlier spike to 1-week highs.
 
Gold prices for Euro investors also eased back, touching last week's closing level at €967 per ounce as the single currency fell despite much stronger-than-expected German industrial output data for August.
 
Currie at Goldman Sachs now sees his target for year-end 2014 at $1050 per ounce – a "key gold level" according to panellists speaking last week at the London Bullion Market Association's conference in Rome.

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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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