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More Appealing Gold Prices for the Middle Eastern and Asian Buyers

The U.S. Comex gold futures have dropped 0.79% in the past two days to $1,225.90 while the Dollar Index has climbed 0.30% and ended at 84.323 on Thursday. The year-to-date gold futures gain has been reduced to 1.96% from as high as 15% in March. The S&P 500 Index and the Euro Stoxx 50 Index climbed 0.64% and 1.54% in the last two days while the CRB Commodities Index dropped 1.22%.

Steeper Slope in the U.S. Interest Rates
While the Fed has pledged to keep interest rates low for a considerable time period, the Fed officials have raised the median estimate of the benchmark interest rate from 1.125% to 1.375% at the end of 2015 as the unemployment rate is expected to fall faster and the inflation to rise a little faster. They estimate for the first time that the interest rate will end at 3.75% by the end of 2017. The gold market reacts negatively to the steeper slope in the projected interest rates and the fact that the Fed is more prepared to tighten than previously thought. The Dollar and the bond yield have risen as a result. In the U.S., the recent weekly jobless claims have fallen below 300,000, a sign that the job prospects are improving. The housing recovery had a setback with the beginning home construction plunging 14.4% in August.

Price Sensitive Gold Buyers
The GFMS has recently projected that a price range of $1,200 to $1,250 is needed to bring back physical buying from the Middle East and the Asian countries. The lack of inflation in the U.S. and Europe and the near-zero growth in Europe have dampened the gold demand. The ECB’s TLTRO lent out 82.6 billion Euros on Thursday against an expected 100 billion to 300 billion Euros, making QE more likely to come. A revival in European growth and rising inflation expectations will be strong catalysts for gold demand.

What to Watch
The market will closely watch the results of the Scotland referendum after 18 September. Next week, the market will monitor the New York Fed President’s speech on 22 September, the September flash manufacturing PMI from China, the Eurozone, and the U.S. on 23 September, the September Germany IFO business climate index, and the August U.S. new home sales on 24 September, the August U.S. durable goods orders and the Japan August CPI on 25 September as well as the final U.S. Q2 GDP on 26 September.

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19 Sep 2014 | Categories: Gold

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