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Gold Prices Heavily Dependent on the U.S. Economic Data and the Fed’s Policy Announcement

The U.S. Comex gold futures rose 0.52 percent on Monday before declining 0.33 percent to end at $1,324 on Tuesday, the day before the FOMC meeting. Year-to-date, the gold futures dropped almost 21 percent although the prices jumped 8.2 percent in July. In contrast, the Dollar Index dropped 1.57 percent in July but rebounded 0.21 percent this week to 81.829 on Tuesday. The S&P 500 Index dropped 0.34 percent this week after being flat last week while the Euro Stoxx 50 Index rose 0.63 percent after rising 0.95 percent last week.

Mixed Global Economic Data
Japan’s June industrial production unexpectedly dropped 3.3 percent from May and declined 4.8 percent from a year ago compared to the expected -2.6 percent. The success of Abenomics hinges on a rebound in nominal growth, inflation, and wages. The U.S. reported the biggest yearly gain in the S&P/Case-Shiller housing index in seven years. In both April and May, the housing index climbed about 12 percent over a year ago, confirming the housing recovery momentum. However, the 30-year fixed mortgage rate has jumped about one percent this year, which may slow down the housing recovery. According to Barclays, the gold prices remain U.S. macro-centric and will likely react negatively to any positive U.S. employment surprises. The market expects the Fed to shed more light on the timing of the QE tapering on 31 July.

Speculators Raised Gold Bets
The CFTC managed money combined total positions in gold jumped to 70,067 contracts as of 23 July from a recent low of 31,197 contracts as of 25 June. In particular, the combined short contracts declined from a high of 80,147 as of 9 July to currently 52,429. The speculators believe that the Fed is unlikely to hurry the tapering. Meanwhile, the central banks of Russia, Ukraine, and Kazakhstan added 4.2 tonnes of gold to their reserves. In China, the first two gold-backed ETFs raised about 1.6 billion Yuan, equivalent to about 6 tonnes of gold. However, the new buying of gold has not been able to offset the decline in investment demand this year.

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31 Jul 2013 | Categories: Gold

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