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Gold Market Anticipates the Policy Meetings Next Week

The U.S. Comex gold futures retreated 0.44 percent in the past two days and rose 2.78 percent for the week to finish at $1,328.80 on Thursday. Year-to-date, the gold futures have dropped 20.71 percent although the prices have rebounded 12.67 percent from the recent trough of $1,179.40 on 27 June. The S&P 500 index has dropped 0.11 percent while the Euro Stoxx 50 index has risen 0.89 percent this week. The Dollar Index fell 0.77 percent this week as the Dollar fell against the Euro, the Pound, and the Yen.

More Growth Outside of the U.S.
The gold prices have reacted positively to the latest jobless claims data in the U.S. and the CPI data in Japan. The weekly unemployment claims in the U.S. were higher than expected at 343,000 while the June durable goods orders jumped 4.2 percent compared to the expected 1.4 percent. Helped by Germany, the July Euro-area flash PMI index unexpectedly expanded to 50.1. The July business climate index in Germany rose 0.3 to 106.2. The Eurozone economies are stabilizing at a time when China is slowing down. Japan’s June CPI rose 0.2 percent compared to -0.3 percent in May while the CPI excluding fresh food jumped 0.4 percent from 0 percent in the prior month. In anticipation of the rise in the consumption tax next April, prices should continue to rise in Japan while the BOJ is likely to step up its stimulus measures to prevent a hit to the household consumption.

The Demand and Supply of Gold
The World Gold Council expects that the Chinese gold demand will reach 950 to 1,000 tonnes this year, and China will surpass India to be the world’s largest consumer. The Council predicts that the central banks will add 400 tonnes of gold this year, down from 532 tonnes last year. However, jewellery demand, which has responded well to the drop in gold prices, is expected to rise as a percentage of total gold demand for the first time in twelve years. While the gold prices have fallen 20 percent this year and will remain reactive to economic data, at a price of $1,300, most companies in the gold mining industry are unprofitable. In the longer run, mine supply shortage will develop, supporting gold prices.

What to Watch
Next week, we shall monitor the June industrial production in Japan on 29 July, the U.S. FOMC rate decision and the U.S. preliminary Q2 GDP on 31 July, the monetary policy announcements by the ECB and the BOE and the July manufacturing PMI for China, the Eurozone, and the U.S. on 1 August as well as the U.S. July non-farm payrolls and the July unemployment rate on 2 August.

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26 Jul 2013 | Categories: Gold

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