China rate surprise knocks 2 percent off gold
October 19 2010
(Reuters) - Gold was set for its largest one-day fall since early July on Tuesday, wiping out all the gains of the last week, as the dollar rose broadly after China surprised markets with its first interest rate hike since 2007.
Adding to the impetus in the dollar was another round of upbeat earnings from the U.S. banking sector. Bank of America (BAC.N), the largest U.S. bank, and Goldman Sachs (GS.N) both beat expectations.
Spot gold fell as low as $1,332.00 an ounce before recovering to $1,339.85 an ounce at 1535 GMT (11:35 a.m. EDT)against $1,368.45 late in New York on Monday. U.S. gold futures for December delivery fell $31.40 an ounce to $1,340.80.
China's decision to raise its benchmark one-year interest rate put perceived risk currencies including the euro and the Australian dollar under pressure, while knocking the commodities complex.
"Clearly it is the move in the dollar that's having probably the biggest near-term impact on the commodities complex and most notably the precious metals," said RBS strategist Daniel Major.
"You've had negative real interest rates in China, but also low rates across the board, so that precious metals and commodities can compete with yielding assets ... The prospect of higher rates in China or elsewhere clearly has got longer term implications as gold can't compete once yields do return to more traditional (levels)."
Bank of America became the third big U.S. bank to beat earnings estimates in the third quarter. Goldman Sachs reported a decline in profits yet still beat analysts' forecasts.
The positive tone in bank earnings has helped soothe some investor concern about the sector's exposure to volatile financial markets and a low-rates environment.
DOLLAR WEIGHS
Strength in the dollar usually weighs on gold, as it makes dollar-priced commodities more expensive to non-U.S. buyers and encourages investor flows into assets that, unlike gold, carry a yield.
"Taken together with more exchange rate flexibility, (this) could point to a stronger yuan over the medium term, which will reduce the need for the dollar to fall against other currencies as part of the process of rebalancing," said Matthew Turner, an analyst at Mitsubishi Corp.
"Anything that alters the perceptions of where the dollar and global monetary policy is headed is significant for gold at the moment," he added.
Gold priced in euros and sterling also fell after China's policy decision, by 1.1 percent and 0.9 percent respectively.
Spot gold prices hit record highs at $1,387.10 an ounce last Thursday, driven by concern over the stability of the currency markets and by expectations for further U.S. quantitative easing which could undermine the dollar.
While they have since corrected, losses were likely to be limited as investors looked ahead to a meeting of the Federal Open Market Committee next month.
"Gold is not going to move much lower when you have the FOMC ahead of us in early November, the G20 preparations later this month and the full summit next month," said Credit Agricole analyst Robin Bhar.
"These are all potentially friendly toward the gold market, certainly the FOMC, where it is expected that they will embark on further easing," he said. "We will see that perhaps pushing the dollar lower."
In New York, the world's largest gold exchange-traded fund, the SPDR Gold Trust reported another small outflow of just under 1 tonne from its bullion holdings on Monday. Its holdings have declined for nine of the last 15 sessions.
Silver was at $23.74 an ounce against $24.35, on course for its largest one-day fall for a week, while the platinum group metals were more insulated against the broad declines in the commodities sector.
Platinum was at $1,671.75 against $1,690, and palladium at $575.00 against $583.58.
Swiss bank UBS identified palladium on Tuesday as one of its top picks among commodities. It forecast an average price for the autocatalyst metal of $500 an ounce this year, rising to $625 in 2011 and $700 in 2012.
The metal has been one of the best-performing precious metals this year, rising 44 percent.
http://www.reuters.com/article/idUST...9?pageNumber=2
October 19 2010
(Reuters) - Gold was set for its largest one-day fall since early July on Tuesday, wiping out all the gains of the last week, as the dollar rose broadly after China surprised markets with its first interest rate hike since 2007.
Adding to the impetus in the dollar was another round of upbeat earnings from the U.S. banking sector. Bank of America (BAC.N), the largest U.S. bank, and Goldman Sachs (GS.N) both beat expectations.
Spot gold fell as low as $1,332.00 an ounce before recovering to $1,339.85 an ounce at 1535 GMT (11:35 a.m. EDT)against $1,368.45 late in New York on Monday. U.S. gold futures for December delivery fell $31.40 an ounce to $1,340.80.
China's decision to raise its benchmark one-year interest rate put perceived risk currencies including the euro and the Australian dollar under pressure, while knocking the commodities complex.
"Clearly it is the move in the dollar that's having probably the biggest near-term impact on the commodities complex and most notably the precious metals," said RBS strategist Daniel Major.
"You've had negative real interest rates in China, but also low rates across the board, so that precious metals and commodities can compete with yielding assets ... The prospect of higher rates in China or elsewhere clearly has got longer term implications as gold can't compete once yields do return to more traditional (levels)."
Bank of America became the third big U.S. bank to beat earnings estimates in the third quarter. Goldman Sachs reported a decline in profits yet still beat analysts' forecasts.
The positive tone in bank earnings has helped soothe some investor concern about the sector's exposure to volatile financial markets and a low-rates environment.
DOLLAR WEIGHS
Strength in the dollar usually weighs on gold, as it makes dollar-priced commodities more expensive to non-U.S. buyers and encourages investor flows into assets that, unlike gold, carry a yield.
"Taken together with more exchange rate flexibility, (this) could point to a stronger yuan over the medium term, which will reduce the need for the dollar to fall against other currencies as part of the process of rebalancing," said Matthew Turner, an analyst at Mitsubishi Corp.
"Anything that alters the perceptions of where the dollar and global monetary policy is headed is significant for gold at the moment," he added.
Gold priced in euros and sterling also fell after China's policy decision, by 1.1 percent and 0.9 percent respectively.
Spot gold prices hit record highs at $1,387.10 an ounce last Thursday, driven by concern over the stability of the currency markets and by expectations for further U.S. quantitative easing which could undermine the dollar.
While they have since corrected, losses were likely to be limited as investors looked ahead to a meeting of the Federal Open Market Committee next month.
"Gold is not going to move much lower when you have the FOMC ahead of us in early November, the G20 preparations later this month and the full summit next month," said Credit Agricole analyst Robin Bhar.
"These are all potentially friendly toward the gold market, certainly the FOMC, where it is expected that they will embark on further easing," he said. "We will see that perhaps pushing the dollar lower."
In New York, the world's largest gold exchange-traded fund, the SPDR Gold Trust reported another small outflow of just under 1 tonne from its bullion holdings on Monday. Its holdings have declined for nine of the last 15 sessions.
Silver was at $23.74 an ounce against $24.35, on course for its largest one-day fall for a week, while the platinum group metals were more insulated against the broad declines in the commodities sector.
Platinum was at $1,671.75 against $1,690, and palladium at $575.00 against $583.58.
Swiss bank UBS identified palladium on Tuesday as one of its top picks among commodities. It forecast an average price for the autocatalyst metal of $500 an ounce this year, rising to $625 in 2011 and $700 in 2012.
The metal has been one of the best-performing precious metals this year, rising 44 percent.
http://www.reuters.com/article/idUST...9?pageNumber=2