Gold Price “Will Probably Test $1400” as Crimea Moves to Quit Ukraine

Thu, Mar 6, 2014 - 10:32am

Gold price trading in London kept bullion prices in a 2-day range between $1330 and $1340 per ounce Thursday morning, while Ukraine's Crimea crisis continued to dominate headlines ahead of tomorrow's much-awaited US jobs data.

Trading some 1.5% below Monday's new 4-month high, the gold price fell for Euro investors, dipping beneath €970 as the single currency rose after ECB chief Mario Draghi reaffirmed a commitment to ultra-low rates.

Members of parliament in the Crimea today voted to put joining Russia to a referendum on March 16th – a move that Reuters called a "dramatic escalation".

Hürriyet Daily News says the Turkish authorities "have given permission to a US Navy warship to pass through the Bosphorus within the next two days as fears grow that the standoff between Russia and Ukraine and the West over Crimea could soon become militarized."

Although the situation is likely to cool short term, "Don't be surprised to wake up one morning to hear that there is shooting going on," said Bill O'Neill of Logic Advisors yesterday, taking part in Bullionvault's live Ukraine & Gold Price Panel yesterday.

The gold price "will probably see a test of $1400 over the next 3-4 months," O'Neill believes.

Agreeing on that near-term test, "Support for gold at $1280 will hold," added 30-year commodities trader and author Andy Hecht.

[Related: Gold expert says bottom is in; bear market for yellow metal over]

Over in Shanghai meantime, China gold prices today went to a premium for the first time this week to the world's benchmark of London settlement.

Rising to $1.40 per ounce, premiums for spot bullion on the Shanghai Gold Exchange peaked at $50 last summer. They were last negative for almost a week in February 2012.

"Feedback from the ground suggests that underlying [Asian] physical demand is currently soft," says a note from Swiss investment and bullion bank UBS.

But "long-term demand support from Asian nominal income growth," counters a new note from Asian brokerage Nomura, "[plus] an evolving post-QE macroeconomic environment and lower disinvestment potential move our gold equilibrium model."

Raising its forecast for gold prices to average $1335 this year, Nomura also hikes its silver price forecast, up by 32% to $21.52.

Silver was trading today at $21.20 per ounce, just shy of last week's finish.

"Last year's shift in the gold market was rapid and the price response substantial," Nomura explains, with a reduction in the US central bank's monthly QE money creation scheme flagged from spring 2013.

With US interest rates now held at zero since end-2008, Federal Reserve member and so-called "dove" John Williams of the San Fran Fed told CNBC yesterday that "it'll be many, many years" before the US returns to pre-crisis GDP growth.

[Hear More: Axel Merk: The Fed Can't Get Back to Normal - U.S. Can't Afford Higher Interest Rates]

"I'm very worried," added Charles Plosser of the Philadelphia Fed this morning, "about the unintended consequences of all this [QE and now tapering] action. Because we've never been here before."

The Bank of England today voted to keep its key interest rate at a record low of 0.5% for the 60th month running — the longest "no change" decision since the UK's central bank "threw interest rates in the bin" from 1932 to 1954, in the words of monetary historian Glyn Davies.

Eurozone policy-makers also voted today to keep their rates unchanged at the record low of 0.25% reached last October.

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