The U.S. Budget Drama and the Longer-term Fundamentals for Gold
After a rebound of 1.51 percent in the U.S. Comex gold futures on
Wednesday, the prices fell 0.92 percent on the next day to $1,323.60.
The Dollar Index has hardly changed after two days. The S&P 500
Index climbed 0.35 percent on Thursday after falling 0.27 percent while
the Euro Stoxx 50 Index was at the same level as Tuesday. The 10-year
Treasury bond yield is steady at around 2.65 percent on Thursday,
declining for three consecutive weeks.
The U.S. Monetary and Fiscal Policies in Focus
Recent positive factors for gold include the delay in the Fed’s tapering
and the possibility of a government shut-down on 1 October, when the
new fiscal year begins. U.S. will also reach its borrowing limit of
$16.7 trillion by 17 October. The U.S. Republicans want to use the
budget negotiation to curtail funding for the ObamaCare which Obama and
the Democrats have rejected. Gold investors were swayed on Thursday as
the U.S. jobless claims declined unexpectedly by 5,000 to 305,000 last
week while a measure of the consumer confidence by Bloomberg has risen
for three weeks, raising again the expectations of the Fed’s tapering.
However, the pending home sales dropped more than expected by 1.6
percent for the month of August.
Reviewing the Longer-term Factors in Gold
Despite the somewhat confusing messages from the Fed and its governors
and the ebb and flow of economic data, it is useful to re-focus on the
longer-term fundamentals of gold. Gold discoveries have fallen off the
cliff from 160 million ounces in 1995 to fewer than 5 million ounces in
2011. The average gold production is about 200 tonnes per month while
China alone imported about 115 tonnes in July. The Indian import demand
has been suppressed by the government’s duties hikes, but the Indian
consumption (in value terms) has not budged as the culture of saving
through gold jewellery is deeply entrenched. Global central banks will
likely add another 350 tonnes of gold to their reserves in 2013.
What to Watch
Apart from following the ongoing U.S. budget debate, we will also
monitor the September China final PMI on 30 September, Yellen’s speech,
Germany’s September unemployment change, and the final September PMI for
the U.S. and E17 on 1 October, Bernanke’s speech and the ECB interest
rate decision and press conference on 2 October as well as the Bank of
Japan target rate and the September U.S. unemployment rate and non-farm
payrolls on 4 October.
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27 Sep 2013 | Categories: Gold
