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Policy-Dependent Gold Prices

The U.S. Comex gold futures rallied 0.74 percent on Thursday but erased their gains on Wednesday, ending at $1,308.50. The Dollar Index jumped 0.45 percent to 80.845 on Thursday, rising 0.16 percent week-to-date. The S&P 500 index was down 0.82 percent while the Euro Stoxx 50 Index was up 0.33 percent in the past two days. The S&P 500 plunged 1.32 percent while the Euro Stoxx 50 Index dropped 0.44 percent on Thursday.

Back to Stimulus Bets
The Q3 U.S. GDP climbed 2.8 percent annualized versus an expected 2.0 percent while the latest weekly jobless claims declined by 9,000 to 336,000. The stronger U.S. data caused both the stocks and gold prices to fall as the market became worried that the Fed will taper sooner than expected (March 2014). Indeed, a recent study by SLJ Macro Partners found that the Fed policy explains 40 percent of the equity price changes. The stronger U.S. growth data overshadowed the cut in interest rate of 0.25 percent by the ECB in order to combat a low inflation rate of 0.70 percent in October. The ECB is likely to continue its accommodative monetary policy as the Euro-economies remain fragile. In China, exports rose 5.6 percent year-on-year in October compared to a median forecast of 1.7 percent, leading to the biggest monthly trade surplus of $31.1 billion for this year and likely reflecting the U.S. recovery.

Central Bank Gold Actions
A study by Precious Metals Insights revealed that China has likely added 300 metric tons of gold in the first six months of 2013 against a global gold production of about 2,700 tonnes. The Chinese demand has helped to support gold prices this year when the price reached a 34-month low in June. While China added gold, Russia has reduced gold in September, and Mexico has continued to cut holdings. The central banks are expected to add 350 tons of gold in 2013 versus 534.6 tons in 2012.

What to Watch
Starting 9 November, the Chinese Communist Party will meet for four days discussing further economic reforms. We will also watch the October U.S. non-farm payrolls and the unemployment rate on 8 November, the October CPI and industrial production on 9 November, the Eurogroup meeting on 11 November, the Q3 preliminary Japanese real GDP and the E17 September industrial production on 13 November, the Fed speech on 14 November as well as the E17 Q3 preliminary real GDP and the U.S. October industrial production on 15 November.


This story is provided by Sharps Pixley, for more information and content please visit: www.SharpsPixley.com

08 Nov 2013 | Categories: Gold

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