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Gold Torn between the Fed’s Tapering and the Syrian Conflict

The U.S. Comex gold futures fell 2.77 percent in the past two days to finish at $1,372.60 on Thursday. The prices traded as low as $1,364.50 during the U.S. morning on Thursday and may experience the largest weekly percentage drop since the end of June. The S&P 500 Index and the Euro Stoxx 50 Index rose in the past two days and are up 1.35 percent and 1.94 percent respectively for the week. The Dollar Index has rebounded 0.67 percent this week to 82.633 on Thursday. The U.S. 10-year government bond yield has jumped 21bp this week and reached 2.9993 percent on Thursday.

Weighing Better U.S. Data against the Threat of War
The U.S. August services sector ISM expanded to 58.6 compared to an expectation of 55.0. The ADP showed that 176,000 jobs were added in August while the jobless claims for the week ending 31 August declined 9,000, with the four-week average dropping to the lowest level since October 2007. The U.S. government bond yield surged while the Dollar Index climbed and the gold prices dropped upon the encouraging economic data. The European bond yield has also been rising in reaction to the Fed’s expected bond purchase tapering as well as the recent European growth recovery. The German 10-year government bond yield has surged above two percent on Thursday compared to 1.3 percent at the end of last year. As President Obama persuades the Congress to vote and looks for the international backing for war in the G20 meeting, the delay in the Syrian strike has put a damper on gold prices. The expected Fed’s tapering has led to currency turmoil in countries such as India, which is suffering from high current account deficit, loose government spending as well as a high inflation. As the Rupee plunges, the Indian gold bar price has reached a recent high of Rupee 32,250 per 10 gram before declining to 30,900 on Thursday.

Gold Premiums and Chinese Imports
According to Bloomberg, the net gold imports by China from Hong Kong rose 12 metric tons to 113 metric tons in July. The World Gold Council predicts that China will become the world's largest gold purchaser, topping 1,000 tons in 2013. However, the gold price premiums in Hong Kong and Singapore have fallen while the U.S. Mint sales in August have dropped to the lowest level since July 2007.

What to Watch
On Friday, the market will closely watch the U.S. August non-farm payrolls and unemployment rate. We will also monitor the August China trade data on 8 September, the August China industrial production on 10 September, the ECB August monthly report on 12 September as well as the August U.S. retail sales on 13 September.

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06 Sep 2013 | Categories: Gold

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