Gold “Could Break Above $1600″ if Bernanke Drops QE Hint, But Investor Interest in Gold “Far from Overwhelming”

Gold “Could Break Above $1600″ if Bernanke Drops QE Hint, But Investor Interest in Gold “Far from Overwhelming”

SPOT MARKET gold prices climbed as high as $1598 an ounce during Tuesday morning’s trading in London, their highest level so far this week, with markets looking ahead to Federal Reserve chairman Bern Bernanke’s appearance before Congress later today.

“Gold is trading in a range between $1550 support and downtrend resistance, currently at $1614,” say technical analysts at bullion bank Scotia Mocatta.

“The trend has been sideways since early June, but the downtrend from the March highs remains intact.”

Silver prices also saw gains this morning, hitting $27.70 per ounce, while commodities in general were broadly flat. European stock markets edged higher – with the exception of the FTSE in London.

A day earlier, Dollar gold prices saw a small rally at the start of Monday’s US session following the release of US retail sales data, which showed an unexpected month-on-month drop of 0.5% in June.

“The slowdown in consumer spending reinforces the overall impression that economic activity has decelerated over the last few months following a relatively strong start to the year,” says James Steel, chief commodities analyst at HSBC.

“This may contribute to greater pressure on the Federal Reserve to provide additional monetary accommodation.”

Despite Monday’s rally, the world’s largest gold ETF SPDR Gold Trust (GLD) continued to see outflows. The volume of gold bullion held to back GLD shares fell 3.6 tonnes yesterday to 1266.1 tonnes – 1% down on where it started the month.

“Investor interest in gold is far from overwhelming despite ongoing macro uncertainty,” says VTB Capital analyst Andrey Kryuchenkov.

“[Although] many market participants expect the US central bank to initiate another round of quantitative easing given that the momentum of the US economic recovery has been slowing.”

Fed chairman Bernanke is due to give his semi-annual monetary policy report to Congress later today.

“The [gold] market seems to have priced in the expectation of more easing,” reckons Lynette Tan, analyst at Phillip Futures in Singapore.

“If there is some sort of hint that there could be quantitative easing [then] gold could break above $1600.”

“There are still some people that are betting on more [QE],” agrees Rabobank strategist Philip Marey.

“[But] I think it’s most likely that they are going to be disappointed.”

Ahead of Bernanke’s testimony, US consumer price index inflation data for June are due to be published later today. Consensus forecast among analysts is for a slight drop in CPI inflation to 1.6%, from 1.7% in May.

Here in the UK, CPI inflation fell to 2.4% last month – down from 2.8% a month earlier – the Office for National Statistics revealed Tuesday. The Pound fell against the Dollar following the release, while the gold price in Sterling rose, briefly touching £1022 per ounce.

Elsewhere in London, Bank of England governor Mervyn King and deputy governor Paul Tucker appear before the Treasury Committee today to answer questions over Libor.

On Monday, former Barclays chief operating officer Jerry del Missier told the Committee that he was “passing instructions along” to subordinates when he asked them to lower borrowing cost estimates submitted to the Libor panel, which sets the benchmark interbank interest rate.

“I fully expected the Bank of England’s views would be incorporated in the submission,” said Del Missier, referring to a conversation in October 2008 between the Bank’s Tucker and Del Missier’s boss at Barclays Bob Diamond.

German investor confidence has fallen for the third month running, according to the ZEW economic sentiment index, which has dropped from -16.9 last month to -19.6.

“Germany’s export prospects to Europe are in the doldrums,” says ING economist Carsten Brzeski in Brussels.

“The US and China cooling doesn’t bode well either…a stronger domestic economy can’t offset that, so we are looking at a long period of stagnation, albeit at a high level.”

In the Far East meantime, sales of gold jewelry by Hong Kong Resources Holdings were up 1% year-on-year in the second quarter, the company reports. Gold jewelry sales to mainland China saw a 5% annual rise in Q2.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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