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Gold Investors Getting Cues from the IMF and Flow Data

After briefly breaching $1,680 on 12 April last week, gold futures ended the week at $1,660, up 1.85% for the week. On Monday, gold futures fell 0.6% while the dollar index also fell 0.4%. Gold stabilized by Tuesday, now trading at around $1,651 as Asian markets open on Wednesday. On Tuesday, after both the S&P and the Stoxx had their worst week since mid-December, S&P rose the most at 1.55% since mid-March and the Stoxx had the largest one-day climb at 2.86% since end of November.

Macroeconomic performance and projections help to whipsaw gold prices while cut in speculative positions in commodities also impact gold.

Growth slowdown in China and fear on Spanish debt auction spilled over from risky assets to gold. China’s Q1 GDP growth slowed to 8.1%, the lowest in 3 years, while foreign direct investment into the mainland sank for the fifth month. The Spanish 10-year government bond exceeded 6% on Monday though it rallied 18bp on Tuesday after the amount of T-bills sold exceeded the maximum target, easing investors’ concern in the short-term.

The IMF upgraded the world economic growth in 2012 from 3.3% to 3.5% and the U.S. economic growth from 1.8% to 2.1% while maintained China’s growth at above 8%, suggesting that the U.S. and the Asian countries can grow fast enough to offset the European recession. India also surprised the market by cutting interest rate by 50bp on Tuesday which will help growth and investment demand including gold.

For the week ending April 10, CFTC reported that fund managers reduced by 9.3% their net positions across the 18 commodities futures and options, the largest decline since 20 December. EPFR Global also reported that commodities mutual funds, especially in gold and other precious metals, saw the largest weekly outflow since early January. However, physically-backed ETPs remain resilient at 2,442 tonnes, just 3 tonnes lower than the peak in mid-March.

Barclays pointed out that while a base for gold may be forming around $1,600, helped by the resilient ETP demand and gradually-rebounding physical demand, for gold to go decisively higher, it needs to reestablish its safe haven appeal in the short-term.

Speeches by the IMF Managing Director and the World Bank President on the world economy end of this week will likely be closely watched by investors.

Austin Kiddle
Sharps Pixley, London

18 Apr 2012 | Categories: Gold

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