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Gold’s Consolidation Continues While Physical Demand Picks Up

The U.S. Comex gold futures fell 1.77% on Thursday, underperforming the S&P, which fell 0.21%, the Stoxx, which fell 0.37%, and the CRB Commodity Index, which fell 1.23%. Gold futures, now trading at $1,550.40, will likely lose about 7% for the quarter, the worse quarterly performance since Q2 of 2004, which was down 8%. Gold futures are now down $16 for the year.

As the EU27 leaders discuss for a second day how to boost growth in Europe, reduce the borrowing costs for Italy and Spain, devise steps for banking and fiscal unions, and to maintain stability for the Euro, economic data out of Europe may already point to a second quarter contraction. A confidence gauge in Europe dropped to a 31-month low, while services and manufacturing output fell for 5 consecutive months. The German economy has not been spared, seeing unemployment rate rising in May. In the U.S., unemployment benefits rose during the week ending 23 June, while consumer confidence dropped 4 months in a row. Crude oil stays below $80 a barrel, reflecting the weaker global economic growth.

While gold price has been affected by speculation on the central bankers’ and the politicians’ actions, the demand for physical gold have been picking up. The IMF reported that Russia, Kazakhstan, Turkey and Ukraine together increased their gold reserves by 25 tons in May. As of last week, the gold volume traded on the Shanghai Gold Exchange rose above the monthly and annual average, indicating some gold buying on weakness. There are also signs that physical gold demand in Europe has picked up in the past month. Indian demand for gold has remained weak though Indian gold futures prices have dropped below 30,000 Rupees per 10 gram as the government tried to boost the Rupee. Both the direction of the Rupee and the monsoon season will drive future Indian gold demand. Gold buying for the wedding season and the Diwali, or the festival of lights, will start in a couple of months.

Important events to watch next week will include China’s and E17’s June Manufacturing Index this Sunday and next Monday respectively, ECB’s interest rate decision and press release next Thursday, and the non-farm payrolls and unemployment rate in the U.S. next Friday.

Sharps Pixley, London

29 Jun 2012 | Categories: Gold

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