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Gold Price Rises, Maintains Momentum

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Gold Price Rises, Maintains Momentum

Gold fell just marginally at Tuesday's open before turning back into the green, rising about $4 per ounce to $1,167/oz. Similarly, silver went from just barely in the red to 0.50% in positive ground, pushing the white metal back above $16/oz.

Platinum was slightly lower, slipping back into triple-digits, while palladium was flat.

Market Factors

The dollar was hanging around unchanged on the DXY index after gold turned positive around 10 am EST. Like gold, the dollar has been quiet the last few trading sessions after jumping 4.3% in just two days to close out last week. In addition to seeing a drop in volatility of late, the gold price traded in a tight $7 range on Tuesday.

It would be an impressive sign if gold can hold onto its gains in the face of more red numbers for the commodities sector. Both crude oil benchmarks were sharply lower, as Brent crude lost more than 1.5% to fall below $47/bbl and WTI crude lost 2.25% to sink below $43/bbl. U.S. crude stockpiles currently sit at an 85-year high, weighing heavily on prices.

Natural gas has also been in a free-fall over the last week, briefly slipping below $2 per million BTU for the first time since the second quarter of 2012, a 41-month low. The price drop is in no small part due to increased supplies from fracking operations. Natural gas prices in the U.S. are expected to be bottoming out, however.

Durable goods orders also fell 1.2% in September.

Taking Positions

There has been a momentous swing in speculative positions on gold (and, to a lesser extent, the other precious metals) over the last month. Where the bears had maintained control of the gold trade for month after month, bullish bets on gold are now at an 8-month high. Not only have short positions been cut, but many hedge funds have scrambled to finally get on the right side of the price movement, as well. (Hedge funds have historically been particularly bad at making calls on gold. Making up for lost time?)

Even with momentum building, many aren't expecting the gold price to move very much in either direction until after tomorrow's FOMC announcement.

Gold mining companies haven't fared quite as well, though. Third-quarter GDP rose at a slower pace than expected in the U.K., which dragged down a slew of of stocks. (Many gold miners are traded on the London exchange.)

Strong Q3 Demand

Despite downward trader influence in the gold mining sector from London, the city (in some circles, "The City") also hosted a recent LBMA conference to discuss the future of the London bullion market. The mood at the meeting was characterized as "cautiously optimistic" on the prospects for the yellow metal, as well as proposed changes for how gold is traded in London.

Analysts from Citi disagreed with the optimism, citing the Fed's first rate hike (expected sometime before March 2016) as keeping gold prices capped around $1,000/oz in the first quarter of next year. The bank did remain bullish on the Platinum Group Metals, however, calling for $1,200/oz platinum prices in the near future.

Meanwhile, Barclays analysts doubled down on earlier optimism, calling for the gold price to average $1,170/oz during Q4 and predicting the metal will trade at an average of $1,215/oz during 2016.

world goldThere are also positive signs for global gold demand. According to GFMS, the third quarter saw strong resiliency in demand for gold coins, bars, and jewelry. Total demand was up 7% during Q3, while investment demand (coins and bars) rose 26% year-on-year. Central banks are on pace to be net buyers of gold for the sixth straight year in 2015; led by Russia, they added 132 tonnes during Q3, a 13% increase over Q2. German retail gold demand rose 19% over last year's third quarter, while heavy-hitters China and India saw year-on-year Q3 retail gold sales grow by 26% and 30%, respectively.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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