Gold may get support on US debt ceiling, Middle East issue: ETFS

Gold under pressure as Syria military attack averted and investors focus on possible Fed tapering. Precious metals declined last week as concerns about an imminent attack on Syria by the US abated and investors continued to focus on the possible announcement of a reduction in Fed bond buying this week, according to a weekly review by ETF Securities Ltd (ETFS).

Palladium was the only precious metal to hold up, as improving global economic conditions and continued strong auto sales lend support. In our view, once the market has put FOMC tapering clarification in the rear view mirror, the focus will likely focus on other issues. Some of these issues include the need to raise the US debt ceiling in the next month or so or face government shut-down, continued upheaval in the Middle East and the Fed’s need to keep bond yield increases in check given its large debt servicing burden. All of these factors should be gold price supportive. On top of these factors, China and central bank physical gold demand remains robust and gold jewellery recycling has dropped sharply, tightening the physical supply-demand balance (as reflected in low to negative gold forward rates). These factors should help to keep a floor on the gold price.

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