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Gold’s Move Pending the U.S. Elections Results and the ECB Meeting Next Week

The U.S. Comex gold futures fell 2.94 percent in October after rising almost 10 percent in August and September. In the past two days, gold futures rose 0.20 percent and ended at $1,715.50 on Thursday. The S&P 500 Index has risen 1.11 percent since the U.S. stock exchange reopened on Wednesday, the Euro Stoxx 50 Index has climbed 0.71 percent while the CRB Commodities Index has rebounded 0.56 percent in the past two days. The Dollar Index rose 0.20 percent and ended at above 80 again on Thursday.

The stock markets and the U.S. dollar are cheered by stronger economic reports from the U.S. and China. The October U.S. ISM factory index rose 0.2 points to 51.7 while a consumer sentiment index rose to 72.2, the highest level since February 2008. The October China manufacturing PMI index climbed to 50.2 which is back to June’s level and may have confirmed the economy has bottomed in Q4.

The news out of Europe was less encouraging. The September unemployment rate in the Euro zone was worse than expected at 11.6 percent. Greece, which was supposed to receive a Euro 31 billion aid in November, is way behind in its promise to implement structural reforms. Bloomberg reported that Greece’s debt to GDP ratio could peak at 192 percent of GDP in 2014 despite a previous target of 120 percent by 2020. Uncertainty in the European debt crisis and global easing should be supportive of European’s gold demand. According to the London Bullion Market Association, gold traded in September jumped to 22.4 million ounces, higher than the 2011 average of 20.7 and the 2010 average of 18.4 million ounces.

A recent UBS report highlighted that gold prices tend to fall in October but rise in November, coinciding with the Indian’s heightened demand for gold. While gold prices may react negatively to a Romney’s presidential win and vice versa to an Obama win, most analysts seem to think the longer-term fundamentals of negative real interest rates, global stimulus and the debasing of fiat currencies will be supportive of gold price.

The upcoming important events to watch will be the October U.S. non-farm payrolls and the unemployment rate on 2 November, the U.S. Presidential elections on 6 November, the ECB and the U.K. monetary policy meetings and the start of the 18th Chinese Communist Party Congress on 8 November as well as the Chinese October industrial production data on 9 November.

Austin Kiddle
Sharps Pixley, London

02 Nov 2012 | Categories: Gold

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