GOLD dropped back to end-August levels in Dollar terms Friday and silver prices erased the last 2 weeks' gains, dropping below $23 per Troy ounce as the US currency held at 6-month highs against the rest of the world's money and hit 16-year highs against the Chinese Yuan.

 

Shanghai gold prices – the benchmark rate for bullion in gold's largest consumer market – set yet another new all-time high, rising above ¥467 per gram as the Yuan in China fell to 2007 lows against the Dollar – with its more convertible 'offshore' version nearing its cheapest ever since launching in 2010 – after the People's Bank reversed last month's strategy of raising its target exchange rate and cut its 'fixing' level.

 

Gold priced in Dollars in contrast traded back down to $1920 per Troy ounce, unchanged from 2 weeks’ ago.

 

China's massive trade surplus with the rest of the world fell harder than analysts expected in August, with exports down 8.8% per year as imports dropped 7.3% in US Dollar terms.

 

World No.3 economy Japan's GDP growth also slowed hard on the latest data, dropping from 6.0% to 4.8% annualized across April-to-June with overall household spending then showing a 5.0% year-on-year drop for July.

 

US economic data, in contrast, has proven stronger this week than analysts predicted, boosting expectations that the Federal Reserve will hold if not raise borrowing costs as it seeks to halve the pace of inflation again – down to its 2% per year target – boosting the Dollar's exchange rate against most other major currencies.

 

 

With Eurozone and especially Germany's economic data meantime pointing to recession, "there is still a great deal of uncertainty" over what the 20-nation European Central Bank will decide on interest rates next week, says a note from French investment bank Natixis.

 

"We are betting on 'no change' [plus] the possibility of an October hike [but] if the ECB were to raise rates [next week] it could legitimately be defended."

 

For US interest rates, "It's pretty clear we're restrictive," said New York Fed president John Williams to Bloomberg yesterday, but holding or raising further "is still an open question as we go forward."

 

"Collectively, our forecast is that rates are going to have to remain up for some relatively extended period," said Chicago Fed CEO Austan Goolsbee to Marketplace, but rather than debating the idea of further rate rises, "the argument should be more about what's the persistence."

 

Euro gold today ended the week little changed from last Friday at €1793 while the UK gold price headed for its highest weekend finish since early June at £1538.

 

Betting on this month's Fed rate decision – due on Wednesday 20 September – overwhelmingly continued to see 'no change' on Friday, while the market-priced odds of a rate rise in November fell further from 50-50 with the first month likely to see a cut from today's 5.50% ceiling switching back to May from yesterday's move to June.