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Gold Price Not Dropping on Bullish Data

The U.S. Comex gold futures initially rose to $1,300 on Wednesday but dropped one percent for the day, erasing the earlier gain in the week. On Thursday, the gold futures rebounded 0.52 percent to end at $1,284.20, rising 0.52 percent for the week. After Ben Bernanke’s two-day testimony, the S&P 500 index rose 0.78 percent while the Euro Stoxx 50 index climbed 1.96 percent. The Dollar Index increased 0.39 percent in the same period although it was down 0.20 percent for the week. 

Did the Fed Say Anything New
Despite much anticipation by the market, the Fed’s speech did not add anything new. His dovish tone has pleased the markets. The Fed said that there are no preset courses for the QE programme. The Fed also reminded the market that there will be a considerable gap between the end of the QE and the beginning of the rates increase. Whether the QE tapering will start in September or not, the interest rates will stay put. Also, the unemployment rate targets are thresholds rather than targets. Bernanke remarked that gold prices have turned lower because people are now less worried about extreme negative outcomes. He also said that the movement of gold is not a good predictor of inflation. The gold futures dropped on Wednesday as the dollar gained. Despite the better than expected U.S. weekly jobless claims at 334,000, the gold price still ended higher on Thursday. As the path of the QE remains uncertain, volatility in the equities, dollar, bonds, and commodities prices will continue. 

Bulls Dominate for Now
According to Bloomberg, the gold traders have been bullish for four executive weeks, taking the cue from the Fed that he will prolong the stimulus if growth slows. The sharp decline in gold prices has revived jewellery, coins, and bars demand. Physical demand has risen especially in China and Japan. Concern on near-term gold supply has pushed up the prices of the July futures above the August futures. The cost of borrowing gold has also shot up to a four-and-a-half-year high in London.

What to Watch 
We will watch for any announcements related to the Fed’s stimulus from the G20 meeting this Saturday. This weekend, Japan will hold its upper house elections. We will also monitor the July flash manufacturing PMI for China, the E17, and the U.S. on 24 July as well as the July Germany IFO business climate index, the June U.S. durable goods order, and the June Japan CPI on 25 July.

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19 Jul 2013 | Categories: Gold

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