Why this September hasn’t been a happy month for gold bugs

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India has made September an unusually difficult month for gold bugs.

Marking the traditional start of gold-buying season in India, it is usually a strong monthfor the yellow metal, but not this time around. On a most-active basis, futures on the yellow metal GCZ4 is down nearly 5% since the end of August, trimming its year-to-date rebound to around 1.8%, according to FactSet. December gold was down $13.10, or 1.1%, in electronic trade as the dollar surged in the wake of Wednesday’s Federal Reserve statement and news conference by Fed Chairwoman Janet Yellen.

Here’s what Barclays precious-metals analysts led by Suki Cooper have to say in a Wednesday note:

As we head into Q4 14, typically a strong season for physical demand, the price floor provided by this demand looks unusually soft. While there are signs that demand has picked up ahead of the wedding and festival related buying season in India, it has not picked up in a fashion commensurate with the recent fall in prices. This deflated cushion is likely to be overwhelmed by a weak macro environment, namely a stronger dollar, with our FX strategists thinking EUR/USD will endure greater deterioration, forecasting a fall to 1.22 in three months and 1.10 in 12 months.

Indeed, throw in a stronger dollar and a Federal Reserve that’s headed toward tighter monetary policy and it can be difficult for a gold bull to find a friend. A stronger U.S. unit can be a negative for commodities priced in dollars, making them more expensive for foreign-currency users. Higher yields, which can go hand-in-hand with a stronger dollar, contrast with gold’s lack of yield.

The Barclays strategists cut their fourth-quarter 2014 average gold price forecast to $1,220 an ounce from $1.260. That said, they acknowledge prices earlier this were  stronger than they anticipated. They marked to market their third-quarter forecast at $1,280 an ounce versus a previous $1,200. They warned that the seeming stabilization in investor interest that buoyed prices earlier in the year may be giving way, noting a pickup in August outflows from exchange-traded products (see chart at top of page.

But some analysts sniff the gloom and see a buying opportunity.

Yves Lamoreux of Montreal based market-research firm Lamoreux and Co., tells MarketWatch in an email that gold’s recent drop has done much damage to psychology, with even “super bullish professionals” losing confidence — a potential contrarian indicator. In addition, he expects long-bond yields to remain historically low and notes signs that cross-border lending is picking up. All in all, that means liquidity is being created despite expectations for rising interest rates, and in the end, that’s what is important for gold, he says.

 

 

 

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