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
