Investors Sell Gold as the U.S. Economy Strengths More than Expected
The U.S. Comex gold futures have dropped close to one percent since the
FOMC meeting on 31 July and ended at $1,310.80 on Thursday. During
Friday in Asia, the gold futures have faced further selling pressure
before the U.S. payrolls data. The Dollar Index declined 0.46 percent
on Wednesday but surged 1.09 percent to end at 82.336 on Thursday. The
crude oil futures jumped 2.72 percent on Thursday after surging 1.89
percent on Wednesday. The S&P 500 index climbed 1.24 percent while
the Euro Stoxx 50 index surged 1.79 percent in the past two days. The
S&P 500 index scored a new record this week.
Economic Data and Central Banks Policies
The gold futures have dropped in the past three days as the stronger
U.S. economic data has strengthened the case for QE tapering in
September. The Q2 U.S. annualized GDP growth was 1.7 percent compared
to the expected 1.1 percent. The July ISM manufacturing index was also
higher than expected at 55.4 while the weekly initial jobless claims
were 19,000 lower than expected at 326,000. In China, the official July
PMI unexpectedly expanded to 50.3 from 50.1 in June. However, the HSBC
Markit PMI data, covering smaller private companies, saw a fall to
47.7. In the Euro-area, the July Markit manufacturing PMI was higher
than expected at 50.3. The ECB President intends to keep interest rates
low for an extended period of time and sees the Euro-area economies
stabilizing. The BOE has also kept the interest rates unchanged while
the U.K. July PMI jumped to 54.6 compared to 52.5 in June.
Factors Beyond the U.S.
On the same day of the FOMC meeting, the World Gold Council (WGC)
released a report urging gold investors not to overestimate the impact
of the rising interest rates and the tightening of the monetary policy
in the U.S. on the gold prices. Nominal interest rates between 2.5 to
6.5 percent are normally associated with an average annualized gold
return of six to seven percent. Emerging markets are now making up
about 70 percent of the annual gold demand while the investment demand
in the U.S. including ETF demand is only ten percent. In fact, the LBMA
has reported that the net amount of gold transferred between gold
clearers reached a 12-year high in June. Other drivers of gold prices
will be the demand from the central banks and the likely decline in
supply.
What to Watch
The market will clearly focus on the July U.S. non-farm payrolls and the
unemployment rate on 2 August. We will also monitor the Bank of
Japan’s target rate announcement, the ECB monthly bulletin, and the
Chinese July trade data on 8 August as well as the July China inflation,
industrial production, and fixed investments data on 9 August.
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02 Aug 2013 | Categories: Gold
