iNVEZZ.com, Thursday, September 18: The price of gold fell to an eight and a half month low today as pressure following a more hawkish stance by the Federal Open Market Committee than previously, decreased the appeal of non-interest yielding assets such as gold and silver.
The Fed increased its median projection to a 1.375 percent interest rate by the end of next year, compared to 1.125 percent in June, while the projection for the end of 2016 was moved up to 2.875 percent from 2.50 percent.
Gold for immediate delivery fell 0.26 percent to $1,219.8 per ounce as of 12:58 BST, a $3.27 decline. It reached as low as $1,216.3 in intraday trading, the worst since 2 January. Gold for December delivery shed 0.9 percent to $1,223.2 on the COMEX in New York as of 13:22 BST.
As reported by Bloomberg, Abhishek Chinchalkar, an analyst at Mumbai-based AnandRathi Commodities Ltd., said in a report: “The Fed seems to be slowly preparing the markets to gear up towards an eventual monetary-tightening cycle.”
In his view “We may see some bargain buying in gold at these levels, but we reckon that any rallies are unlikely to be sustained as we head closer towards an eventual end to the ultra-accommodative monetary stance in the US.”
In other news today, the People’s Republic of China opened its gold exchange to foreign players for the first time, setting the world’s largest bullion market on track to win the race for the establishment of an Asian benchmark price.
The Shanghai Gold Exchange (SGE) will launch its international bourse with eleven yuan-denominated gold contracts, the first in a number of gold contracts expected to be set in the region by the end of the year.
Last week CME Group Inc, one of the world’s largest options and futures exchanges, announced it would establish a physically deliverable gold futures contract in Hong Kong later in the year. Gold price slides to seven and half month low on Fed rates outlook
A successful take-off could see more gold priced and traded in yuan rather than the US dollar, challenging the traditional dominance of London and New York.
Asia, which accounts for about two thirds of world gold consumption, has long been clamouring for a pricing reference which reflects the region's market dynamics more accurately and amid growing scrutiny over prices set in the West, although previous efforts have failed to win over investors.
The near-century old London fix, the global benchmark for spot gold pricing which is determined by a group of four banks via teleconference, has recently fallen under investigation by both European and US regulators on suspicion that ‘the fix’ may indeed have been manipulated on occasions.
According to market participants the Chinese effort has the best chance of success, with last year’s imports of over 1,000 tonnes of gold and local production of 400 tonnes, China is the world’s biggest consumer with over a third of global supply.
Jeremy East, global head of metals trading at Standard Chartered told Reuters that "what we will see over time is the move towards pricing of gold and other commodities in offshore” renminbi (RMB). According to him the setting of an Asian benchmark "has global implications, for instance any producer selling gold into China would be paid in RMB rather than in dollar, which has been the traditional pricing currency hitherto."
"We should have gold fixing, pricing done in China itself," SGE chairman Xu Luode said during an industry conference in Singapore in June. "We need to build China's influence in the global gold market."