Fed Minutes Split Metals Traders, India's Festival Gold "Already Stockpiled"

BULLION prices recovered most of an earlier dip lunchtime Wednesday in London, with gold trading 1.2% lower for the week so far ahead of policy-meeting minutes from the US Federal Reserve.

Asian and European stock markets fell once again, as did commodities and major government bond prices.

Analysts and wholesale gold dealers said they would look for discussion of reducing quantitative easing – held at $80 billion per month – in the US central bank's notes.

"Wednesday could turn out to be a rather strong day in most markets," reckons Edward Meir writing for brokers INTL FCStone.

"Should central bank deliberations reveal that officials remain uncertain as to whether or not to remove stimulus, we could see a rather sharp move higher...including [in] gold and silver."

But "market participants will be looking for some clarity," says a note from French bank BNP Paribas, "[plus] a possible timeline on the QE tapering plans."

Silver prices rallied alongside gold ahead of today's US Fed minutes, recovering 20 cents to rise back above $23 per ounce but holding 1.2% down for the week.

"Any hawkish comments could see small-scale profit taking in gold," says VTB Capital strategist Andrey Kryuchenkov, speaking to Bloomberg.

What's more, he adds, "It will be harder to sustain physical demand at higher prices with bargain hunting clearly running out of steam."

World #1 gold consumer India "remains largely absent [from the market] amid tighter regulations and a weak currency," says Swiss investment bank and major world bullion dealer UBS in a note.

"Conversations with local participants suggest that there is good interest to re-start import activities soon, especially with authorities currently working to clarify the new rules."

Looking ahead to Diwali however, "The retail trade has built sufficient stock to cover much of the wedding and holiday season," says the latest Precious Metals Weekly from Metals Focus.

Reporting from this week's India International Gold Convention in Jaipur, as well as other major gold centers, "Unofficial flows [ie, smuggling] appear to have increased too," says the new London-based consultancy.

"We are keeping an eye out for any increase in shipments of 100g bars (at times prefered for this activity) at the expense of kilobars."

Indian interest rates meantime edged back today from Tuesday's 12-year highs, with the 10-year bond yield slipping from 9.48% after the Reserve Bank vowed to buy eight thousand crore Rupees ($1.3bn) worth of government debt this coming Friday, injecting cash into the banking system.

Gold futures in Mumbai rose to 8-month highs however as the Rupee fell further, hitting fresh record lows against the US Dollar.

Mumbai shares dropped the same amount, down 1.8% for the day and extending their fall since a month ago to more than 11%.

Ahead of today's US Federal Reserve minutes, "I think it is the lack of Dollar supply than anything else to blame," reckons fixed-income analyst Suyash Choudhary at IDFC, quoted by the Economic Times of India.

"Unless QE is to be wound up completely," says a trading note from Marex Financial's London-based head of precious metals David Govett – and "it won't be – I would look to buy dips in the case of a reaction sell off" in gold.

Adrian Ash

BullionVault

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