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Gold Prices in the Face of a Darkening Global Economic Outlook

The U.S. Comex gold futures traded in a narrow band of $1,155 to $1,170 in the past two days and were down 0.71% week-to-Thursday. During Asia morning on Friday, the gold futures dropped 0.56% to $1,155 while the Dollar Index surged 0.43% to 88.053. The crude oil prices plunged 3.85% to $74.21 on Thursday and were down almost eight percent this month. This week, the S&P 500 Index was up 0.41% while the Euro Stoxx 50 Index was down 0.20% and the Nikkei Index jumped 3.04%. The U.S. ten-year government bond yield climbed 4.2bp this week to 2.34% while the ten-year German Bund yield plunged below 0.80% on Thursday.

The Economic Cloud is Darkening
With China’s October industrial production rising 7.7% year-on-year compared to an expected eight percent, retail sales at 11.5% compared to 11.6% expected, and the October yearly electricity output growth at 1.9% compared with 4.1% in September, the Chinese leaders are targeting a lower growth of between seven to 7.5% in 2015 as the country is pushing through structural changes. A Bloomberg poll this week shows that investors are worried that the Euro Area and the emerging countries growth prospects are worsening and the risk of deflation rising. The Q3 GDP of Germany and France rose 0.1% and 0.3% respectively.

Gold Demand and Supply Trend
The World Gold Council (WGC) reported that the global gold demand declined about two percent year-on-year to 929 tonnes in Q3 while the total supply also dropped seven percent mainly due to the fall in recycling. China’s jewellery demand, although dropping 39% year-on-year, was in line with the five-year quarterly average while India’s jewellery demand picked up 60% from a low base last year. The central banks continued to buy gold for the 15th consecutive quarters. Year-to-date ETF outflows slowed from 699 tonnes last year to 84 tonnes this year. The WGC expects the physical demand will remain strong.

What to Watch
We will monitor Japan’s Q3 GDP on 16 November, the October U.S. industrial production on 17 November, the Australia central bank's speech on the economy on 18 November, the U.K. MPC minutes, the U.S. FOMC meeting minutes, and the U.S. October housing starts on 19 November, the November “flash” manufacturing PMI for China, the Eurozone, and the U.S. as well as the U.S. October CPI on 20 November.

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14 Nov 2014 | Categories: Gold

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