Editorial: Lack of QE tapering backstops gold price

Mid-September has been a busy time for the gold market.

• Front and centre was the U.S. Federal Reserve’s Federal Open Market Committee decision on Sept. 18 to carry on with its quantitative easing in the form of a monthly US$85-billion bond-buying program, divided between US$40 billion per month on mortgage-backed securities and US$45 billion per month on longer-term Treasury securities.

This gold-bullish move was a surprise to the broad market, which was expecting a tapering off of the bond-buying program in the final months of Fed chairman Ben Bernanke’s term. Spot gold prices jumped US$40 into the US$1,360 per oz. range on the comments, reversing a month-long downtrend, before drifting back down a few days later.

The committee said it is maintaining its policy of reinvesting principal payments from its agency-debt holdings and agency mortgage-backed securities in agency mortgage-backed securities, and of rolling over maturing Treasury securities at auction. Taken together, the committee said, “these actions should maintain downward pressure on longer-term interest rates, support mortgage markets and help make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help ensure that inflation, over time, is at the rate most consistent with the committee’s dual mandate” to foster maximum employment and price stability.

Prominent U.S. economist, former Treasury secretary and former Obama aide Larry Summers was widely seen as the leading contender to replace Bernanke as Fed chairman, but he withdrew from the race on Sept. 15, clearing the way for Janet Yellen, currently the vice-chairperson of the Board of Governors of the Federal Reserve System, to succeed Bernanke on Feb. 1, 2014.

• Thomson Reuters GFMS came out with its latest figures on the global gold market, and found that gold-mine production maintained its annual 3% growth rate during the first half of 2013 despite falling gold prices, punctuated by some harsh trading days in April and June.

GFMS says the mine-production increase happened across a broad geographic base, with the highest growth in China, the Dominican Republic, Canada and Russia.

At the same time, the bane of miners — rising production costs — continued unabated during the first half of the year, rising 7% on a year-over-year basis and compressing profit margins.

Rhona O’Connell, head of metal research and forecasting at GFMS, commented that “to date we have only seen a modest number of producers elect to cease operations, and with the recent price recovery, we expect this to remain the case in the short to medium term, limited to smaller, cash-strapped producers at the top end of the cost curve.”

GFMS predicts that 2,917 tonnes gold (93.78 million oz.) will be mined this year, up from 2,864 tonnes (92.08 million oz.) in 2013, for a 1.8% year-over-year increase. It also predicts the gold price will average US$1,446 per oz. this year, down 13.4% from 2012’s US$1,668.98 per oz.

• If you’re still reeling from Pluto no longer being designated a planet, brace yourself: Gold, along with 18 of its periodic tablemates, is getting a new atomic mass designation by the International Union of Pure and Applied Chemistry, thanks to better measurements and calculations of isotope abundances of recent years.

Measured in atomic mass units (amu), with 1 amu equal to 1/12 of a single carbon-12 atom, the standard atomic mass of an element is the average for all its stable isotopes that occur in nature.

Some of the biggest changes are for molybdenum, cadmium, selenium and thorium. Others on the extreme makeover list are: beryllium, fluorine, aluminum, phosphorus, scandium, manganese, cobalt, arsenic, yttrium, niobium, cesium, praseodymium, holmium and thulium.

The journal Pure and Applied Chemistry will publish a new “Table of Standard Atomic Weights 2013” next year.