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Can the Chinese and the Gold Miners Support the Key $1,200 Level?

The U.S. Comex gold futures rallied 0.46% on Wednesday and was flat on Thursday, the day before the U.S. non-farm payrolls report is due. During Friday morning in Asia, the gold futures touched $1,260. The fact that the Chinese are returning from their Lunar New Year holiday may have added to the gold price momentum. In the past two days, the S&P 500 Index rose 1.04% while the Euro Stoxx 50 Index jumped 1.65%. The MSCI emerging markets stocks index rebounded 1.44% on Thursday after declining on most of the days this year. The Dollar Index fell 0.50% this week to 80.906 on Thursday.

The ECB Took a Pause
The ECB kept the 0.25% interest rates unchanged on Thursday but will monitor next month’s data and be ready to shift to a more accommodative stance if necessary, especially if the risk of deflation rises. In March, the ECB will publish its 2016 inflation estimate for the first time as well as its quarterly macro forecasts. Like the U.S., the ECB will focus on its own monetary policy mandate despite the turmoil in the currencies and stocks of the emerging countries and their growth slowdown. The worldwide stock markets rebounded as the U.S. jobless claims fell more than expected to 331,000 in the week ending 1 February.

The $1,200 Support Level
The World Gold Council has recently mentioned that 30% of the gold mines operations will become unprofitable if the gold prices fall below $1,200. If the prices stay below that level for a sustained period, the miners will seriously cut back production. With large miners writing down capital, the falling scrap supply, and a 20-year cycle to bring up production from deposits, the gold supply is getting tight, lending support to the $1,200 level.

What to Watch
The market will keenly watch for any surprises in the U.S. January non-farm payrolls and unemployment rate on Friday. We will monitor the January new loans and M2 growth in China on 10 February, the January trade numbers from China and the December E18 industrial production on 12 February, the ECB monthly bulletin and the U.S. January retail sales on 13 February as well as the E18 preliminary Q4 GDP growth and the January U.S. industrial production growth on 14 February.

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07 Feb 2014 | Categories: Gold

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