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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

26 Oct 2012 | Categories: Gold

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