ECB Rate Cut & US Growth Whip "Soporofic" Gold Market

WHOLESALE GOLD turned suddenly volatile lunchtime Thursday in London after the European Central Bank surprised analysts by cutting its key interest rate to a new record low of 0.25%.

The Euro currency sank to an 8-week low vs. the Dollar, while European stock markets turned higher.

Leaping towards 6-week highs for Eurozone investors, gold initially dropped $5 per ounce, and then rallied $15, before returning to the $1317 per ounce level seen throughout what traders called "soporific, slow" dealing so far this week.

New US data then showed the world's largest economy growing 2.9% annualized during the July to October period, dramatically beating analysts' GDP forecasts of 2.0% growth.

Gold then fell to 3-week lows beneath $1300 per ounce.

Silver prices whipped 2.6% inside 40 minutes, also dropping substantially below the week's previous range.

Friday brings key US jobs data, widely seen as determining the Federal Reserve's view on future growth and therefore affecting its appetite for quantitative easing – currently left at $85 billion per month.

"The good news for gold bulls [was] that $1300 seems to be providing some type of psychological support," said Scotiabank's latest technical analysis of the gold charts late Wednesday.

"If you look at the gold market and the sentiment at the moment," said Mark Bristow, CEO of gold miner Randgold Resources to Reuters Insider TV today, "there's more downside risk than upside risk in the short term.

"But if you look at the longer term," said the CEO of South Africa's largest gold mining firm – now sinking shafts at the giant Kibali project in the Democratic Republic of Congo – "there's a healthy demand for gold."

The gap between Chinese gold supply (imports plus mining) and reported private demand "clearly implies" that China's central bank is buying gold, says Philip Klapwijk, formerly of Thomson Reuters GFMS and now CEO of new consultancy Precious Metals Insights in Hong Kong.

On Klapwijk's reckoning, the PBoC may have acquired some 300 tonnes of gold during the first half of 2013, helping "support" the metal during its sharpest drop in three decades.

Either way, "This year China will become the world's biggest source of demand for gold," says Nic Brown's commodity team at French investment and bullion bank Natixis. Because imports to historic world No.1 India "have collapsed as a result of strong government measures to reduce the trade deficit and combat a depreciating currency."

Adrian Ash

(c) BullionVault 2013

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