Gold Prices Keep Falling While Market Expects a Smaller Fed’s Taper
The U.S. Comex gold futures rose 0.72 percent on Monday but fell 0.64
percent on Tuesday. The gold futures dropped below $1,300 during Asian
morning on Wednesday, reflecting the traders’ jittery towards the Fed’s
announcements on Wednesday. The Dollar Index fell 0.38 percent in the
past two days to 81.143 on Tuesday. The S&P 500 Index rose about
one percent this week after rising 1.98 percent last week while the Euro
Stoxx 50 Index increased 0.83 percent after surging 2.27 percent last
week. The U.S. 10-year Treasury yield fell from a recent high of three
percent to around 2.85 percent on Tuesday.
A Smaller Fed Taper?
Summers’ withdrawal from the Fed Governor’s race has raised the odds of
Yellen being the next chairwoman. As the bond yields have risen to
reflect a tighter monetary policy under Summers, bond yields rallied and
the gold prices rose on Monday. On Tuesday, gold prices dropped as the
U.S. August CPI rose 0.1 percent compared to a median forecast of 0.2
percent and the investors lowered their demand for gold as an inflation
hedge. With a moderate inflation and a lower than expected industrial
production of 0.4 percent in August, a Bloomberg survey forecasts that
the Fed will taper by only $5 billion per month from a higher amount
before. The gold futures may have already priced in a $10 billion
tapering although gold prices are still very volatile as the path of
tapering is uncertain. Investors will also focus on the Fed’s economic
projections for 2016.
Lower Gold Demand from Indian Consumers and Speculators
On Tuesday, India raised the import duty on gold jewellery to 15
percent, which is higher than the ten percent imposed on raw gold
imports. Festival demand this year is expected to drop as prices have
become very volatile due to the Rupee sell-off and the Q2 GDP slowing to
4.4 percent year-over-year from six percent at the end of 2011.
Consumers tend to wait-and-see when prices are volatile. India accounts
for about 20 percent of global gold demand. Based on the CFTC data,
the net-long combined positions by speculators dropped 16 percent during
the week ending 10 September from a recent high of 101,396 contracts
the week before. Sell-side analysts including Goldman, Societe
Generale, and ABN Amro expect gold prices to further decline from here.
At the same time, production cut by the gold producers, if prices fall
below $1,200, and the resurgence of geopolitical risks could stabilize
or boost prices.
This story is provided by Sharps Pixley, for more information and content please visit: www.SharpsPixley.com
18 Sep 2013 | Categories: Gold
