Technical Selling, Reduced Bets on Gold and Higher Indian Gold Demand
The U.S. Comex gold futures fell 0.85 percent this week after falling
3.19 percent in the past two weeks. In fact, at $1,709.40, the gold
futures were trading a mere 1.43 percent higher before the run-up in
price in September in anticipation of the Fed’s QE3. The CRB
Commodities Index followed a similar pattern and fell 0.74 percent this
week after declining 4.55 percent in the past two weeks. Both the
S&P 500 Index and the Euro Stoxx 50 Index were weak in the past two
days, falling 1.40 percent and 2.53 percent respectively while the
Dollar Index strengthened 0.44 percent.
Several recent events have strengthened the U.S. dollar while punctured
the rally in gold. With the recent U.S. economic data being stronger
than expected and also stronger than its neighbours, gold traders are
eagerly anticipating the U.S. FOMC meeting conclusions this Wednesday
for any change in tone or pace in easing. The September core inflation
in the U.S. was unchanged from August after rising 0.4 and 0.2 percent
in July and August respectively, thus reducing inflation expectations.
On Monday, Moody’s downgraded Catalonia by two notches and lowered
ratings for four other Spanish regions. The 10-year Spanish government
bond yield has crept up 32bp in the past 3 days due to Moody’s actions
and no aid requested for Spain yet, leading to more U.S. dollar
strength.
Technical selling of gold has occurred as the price of gold broke below
its 50-day moving average on Tuesday. When gold prices failed to breach
$1,800 an ounce, traders have been paring back positions. The CFTC data
as of the week ending on 16 October showed that gold speculators’ net
long positions (futures and options combined) fell 7 percent from last
week, a two-month high. Traders also reduced their bullish bets across
all commodities to the lowest level since 24 July according to
Bloomberg, reflecting their concerns on slowing economies.
Some positive events to watch out for include the upcoming festival and
marriage seasons for the Indian consumers to buy gold. Bullion price in
India has retreated 4.4 percent from the high reached on 14 September.
Gold demand is expected to rise in Q4 2012 due to weaker prices and
stronger jewellery and investment purchases according to the All India
Gems & Jewellery Trade Federation.
Austin Kiddle
Sharps Pixley, London
www.SharpsPixley.com
24 Oct 2012 | Categories: Gold
