The D-word Hurt Gold Price While Central Bank Buying Cheered Gold.
After falling for the past two weeks, the U.S. Comex gold futures
rebounded 0.67 percent to $1,713 on Thursday after touching a low of
$1,698.70 on Wednesday. The S&P 500 Index rose 0.3 percent on
Thursday after falling 1.75 percent in the previous two days. The Euro
Stoxx 50 Index traded down 2.31 percent this week. The crude oil
futures bounced slightly by 0.37 percent to $86.05 on Thursday. It
dropped 4.44 percent week-to-Thursday. The Dollar Index rose above 80
on 24 October and has risen 0.5 percent this week.
Gold traders seem frustrated after the gold futures failed to pierce
through $1,800 in early October. Also the market appears to be
concerned with the “D” word - deflation. The ECB President Draghi said
that his bond-buying programme will focus on countries whose fiscal
paths are sustainable and the programme will not create inflation. He
was more worried about falling prices in several Euro-area countries
than inflation. In Europe, the October Eurozone manufacturing PMI was
at 45.3 compared to the expected 46.5. The IMF projects that the Euro
Area may contract 0.4 percent this year. In the U.S. business spending
prospect looks grim - non-defense capital goods bookings were unchanged
in September compared to a 0.2 percent rise in August. Slowdown in
Europe and Asia and the looming fiscal cliff in the U.S. have hurt
business orders.
The Fed would continue with the same QE3 policy announced in September
which calmed the gold market yesterday. Also the same low Fed Funds
rate would be maintained at least through mid-2015. The bigger event
for gold would be the 6 November U.S. election. If Romney wins, the
dollar could get a boost and the Fed’s easing policy might not continue.
Today, more central bank gold buying news cheered gold. Brazil added
1.7 tons in September while Turkey added 6.8 tons. Brazil last added
gold in December 2008. The buying is expected to continue given the
lower prices and currency risks in the developed world. The Bloomberg
data shows gold-backed ETP holdings reached a record high of 2,585.1
metric tons as of 24 October while big speculators are still bullish on
gold.
The important events to watch would be the U.S. Q3 GDP data on 26
October, the Bank of Japan Monetary Policy Meeting and the Eurozone
October business climate indicator on 30 October, the U.S October ISM
manufacturing index and China’s official October PMI on 1 November and
the U.S. non-farm payrolls report on 2 November.
Robert Jilles
Sharps Pixley, London
www.sharpspixley.com
26 Oct 2012 | Categories: Gold
