Weak US Data See Precious Metals Rise On "Ugly Truth" Of Fed Policy

BOTH gold and silver rose Wednesday lunchtime in London, as the day's widely-expected "no change" decision from the US Federal Reserve was preceded by weak US data.

The private-sector ADP Payrolls report said the US economy added only 130,000 jobs last month, rather than the 150,000 analysts forecast.

US inflation also lagged consensus forecasts, as did Germany's consumer price index, which showed a 0.2% fall this month from September.

Gold added 0.5% to $1358 per ounce. Silver prices gained 1.4% to break above $23 per ounce for the first time in 6 weeks.

"We are concerned that the ugly truth is that money printing remains the major prop keeping the global economy from toppling over," says John Chatfeild-Roberts, part of the multi-manager Merlin team at UK fund giant Jupiter.

Underperforming their benchmarks in 2013 thanks to the falling gold price, Merlin's managers warn that quantitative easing "[may] be enough to tide us over until the buttressing effect of sustainable economic growth emerges.

"[But] the alternative scenario helps to explain why gold remains of value in what appears to be a precarious future."

"The global economy," writes Marcus Grubb, director at market-development organization the World Gold Council in its latest Gold Investor report, "has come a long way since the 2008-2009 financial crisis and its aftermath."

But with growth weak and financial markets volatile, investors "[should] apply the single most important lesson learned during the Great Recession: risk management matters."

Advising that gold remains integral to long-term investor holdings, Grubb's team go on to explain "why a 2% to 10% allocation to gold in well-diversified portfolios makes sense."

Over in Asia on Wednesday, Hong Kong-based jewelry retailer Chow Tai Fook – one of China's largest gold chains, with 1,850 outlets – said today it expects to report strong growth in half-year sales, sending the company's stock 3% higher.

Shanghai gold contracts meantime reversed Tuesday's $3.50 discount to London prices, ending the day with a $1.50 per ounce premium to that global benchmark.

More widely in Asia however, "Physical demand in this part of the world has shown some signs of weakening recently," says a note from AnandRathi Commodities Ltd. in Mumbai.

Indian premiums on investment gold bars, over and above London benchmarks, today crashed to $70 per ounce "due to weak demand for gold on the domestic market" according to one Mumbai dealer quoted by the Business Standard.

But other sources continued to put the Mumbai premium at $115 per ounce, and "Still gold is not available," Reuters today quotes All India Gems & Jewellery Trade director Bachhraj Bamalwa.

Two days before Dhanteras marks the start of Diwali, the peak gold-buying festival in the world's No.1 consumer nation, Bamalwa put the premium to London benchmarks at $120-130 per ounce.

Thanks to 2013's good monsoon and harvest, "Farmers will have additional disposable income," explained the World Gold Council's P.R. Somasundaram, managing director India, earlier this month.

"As an Indian, the first thing comes in our mind after food is to accumulate some gold. Based on that fact, we estimate a robust quarter for gold this year."

2013's bumper harvest means wheat exports from India – already the world's No.2 supplier – will rise by one third to new record highs, says Singapore trader Agrocorp.

India's food ministry may this week cut the minimum price needed to make wheat exports, says Bloomberg, because the country's own state reserves are now double what it needs.

High-spending Indian jewelry buyers are switching however to platinum and diamond pieces, according to a survey from the Associated Chambers of Commerce & Industry.

More than three-quarters of the 350 jewelers surveyed by AssoCham said they have increased their platinum and diamond work, to meet consumer demand hurt by this year's record-high gold prices and now the shortage of gold forced by the Indian government's gold imports ban.

Adrian Ash

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.