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Gold Market Watching the Chinese Money Market Mini-Scare and the U.S. FOMC

The U.S. Comex gold futures retreated 0.52 percent in the past two days ahead of the FOMC meeting announcement on Wednesday while the Dollar Index rose 0.52 percent. This week, the S&P 500 Index and the Euro Stoxx 50 Index have risen 0.70 percent and 0.53 percent respectively. During Asian Wednesday morning, the gold futures traded down about five dollars to $1,340 while the U.S. 10-year government bond yield hovered around 2.50 percent. Month-to-date, the gold futures rose 1.43 percent although the prices have dropped close to 20 percent year-to-date.

U.S. Consumers and China Money Market Rates
The U.S. September retail sales excluding autos rose 0.4 percent compared to a 0.1 percent increase in August, helped by better electronics sales and the ongoing housing recovery. The S&P/Shiller Index jumped 12.8 percent year-on-year, the highest percentage gain since February 2006. However, the October Consumer Confidence Index plunged nine points from last month to 71.2, reflecting consumers’ uncertainty with the budget talk and the employment outlook. In China, traders watch the continuous rising seven-day repurchase rate, an indicator of funding conditions, which has risen to a three-month high of five percent on 29 October. Tightening financial conditions amidst a rebound in economic growth and inflation in China unnerves market, driving the Chinese gold price to close below the London gold fix the first time this year. In India, the Central Bank raised interest rate a second time to 7.75 percent to combat a close to ten percent inflation rate.

Investor Flows
As the Dollar Index has recovered from a nine-month trough on 24 October, gold prices have correspondingly retreated. Worldwide gold-backed ETF holdings rose the most in a year on 22 October although the holdings have fallen about 27 percent over a year ago. Speculators increased their net long positions by 16 percent to 84,666 contracts for the week ending 8 October as the U.S. budget talk intensified, with the shorts positions falling by about 69 percent since the recent peak in early July. Russia sold 0.37 metric tons of gold in September during the time when investors redeemed funds massively from emerging markets. Market does not expect the Fed to alter its QE positions on Wednesday and will monitor the press announcement closely.

30 Oct 2013 | Categories: Gold

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