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Stronger U.S. Data and China Concerns Prompted Short-term Momentum Selling in Gold

After reaching $1,798.10 during Asian open on 5 October, the U.S. Comex gold futures went to a low of $1,729.7 this Monday and ended at $1,746.30 on Tuesday. Gold prices retreated 1.26 percent on Monday, the largest percentage fall since 6 July this year. Gold price was down 0.76 percent this week after falling 1.18 percent last week while the Dollar Index fell 0.33 percent after rising 0.42 percent last week. The S&P 500 Index rebounded 1.84 percent after falling 2.21 percent last week while the Euro Stoxx 50 Index shot up 3.19 percent this week after being down 2.45 percent last week.

Several factors have weakened gold prices’ sentiment since Friday and have triggered some momentum selling. The October U.S. consumer confidence was higher than expected at 83.1, the highest level since October 2007. The September advance retail sales went up 1.1 percent, higher than expected. Industrial production in September also jumped a higher than expected 0.4%. Stronger data from the U.S. could shorten the time the Fed will buy mortgages on an open-ended basis, therefore lowering the inflationary impact. In addition, a Mitt Romney Presidential win would mean more cut in the U.S. government spending which would hurt gold prices. On the eve of the release of the Q3 Chinese GDP report, investors appear worried that the government has not done enough to stimulate the economy. China’s August gold import from Hong Kong fell 29 percent to 54 tons from July, possibly due to a slowing down of economic growth and a deceleration in the pace of stocking up of gold by retailers and banks.

On the other hand, the demand for gold from traders and investors has continued to jump. According to the CFTC data, gold traders’ net long positions reached a 14-month high while the gold-backed ETF holdings reached another record at 2,582.98 metric tons last Thursday. In addition, the expectation that Spain could seek a bailout request depressed the U.S. dollar and boosted gold price on Tuesday.

Gold price will likely take its cues from the Chinese Q3 GDP number to be released on 17 October and the announcements from the 18 to 19 October EU Summit.

Austin Kiddle
Sharps Pixley, London

17 Oct 2012 | Categories: Gold

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