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Catalysts for Gold Price Beyond the FOMC

The U.S. Comex gold futures climbed 0.24 percent this week after falling 0.32 percent last week. On Wednesday morning in Asia, gold futures inched up slightly to $1,712 from Tuesday’s close of $1,709.60. Year-to-date, gold futures are up 9.11 percent. After touching a low of $700 in November 2008, gold has returned about 21 percent per annum from the end of 2008 to 2011, beating both the S&P 500 index and the CRY Commodities index. This week, the S&P 500 index and the Euro Stoxx 50 Index rose 0.69 percent and 0.87 percent while the Dollar Index fell 0.43 percent.

China and India’s Demand for Gold
China’s recent economic growth numbers may boost the outlook for gold demand. The November industrial production climbed 10.1 percent compared to the 9.8 percent forecasted while the November retail sales rose 14.9 percent. China imported about 47.5 metric tons of gold in October, a drop of 32 percent from September. However, year-to-date to October, China imported 629 metric tons compared to 290 metric tons during the same period last year. India, who imported 969 tons of gold last year, is expected to come up with a gold investment plan to stop the trade deficit from rising further because of higher gold and oil imports. Current account deficit reached a record high of $21.8 billion during the January to March quarter. This has led to a weaker Rupee, higher inflation and lower growth. Gold has been traditionally viewed by the Indians as a store of value, inflation hedge and social security which means gold demand will not easily come off.

Some Positive European News
Euro/Dollar has gained in the past two days as Greece has successfully completed its bond buy-back of more than 30 billion Euros which will lead to the aid from the IMF and the EU. An investor confidence index in Germany jumped unexpectedly from minus 15.7 in November to a positive 6.9 in December which may point to a revival of Germany’s growth in early 2013.

All Eyes on the FOMC on Wednesday
According to Bloomberg, the market has expected the Fed to buy $45 billion of Treasuries per month as the operation twist will end at the end of December, in addition to buying $40 billion of mortgages per month. The expansion in the Fed’s balance sheet and an expected rise in inflation will support gold price. What if the Fed disappoints? Physical demand has responded well in the recent gold price dips with central banks and gold-backed ETP investors picking up the slack. Also, the uncertainties from the U.S. fiscal cliff and the debt ceiling negotiations should boost the demand for gold.

Austin Kiddle
Sharps Pixley, London

12 Dec 2012 | Categories: Gold

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