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Two Different Gold Price Actions

After rising almost 11% in January, gold Comex futures declined 3 months in a row, ending at $1,664.2 at the end of April. Year-to-date gold futures gained 6.3% compared to MSCI World (Developed Market) Index, 10.8%, CRB Index, 2.2% and Dollar Index, -1.7%. From this year’s peak reached on 28th February at $1,792.7, gold futures declined 7%.

While spot gold in US dollars has not recovered from its early September peak of $1,921.1, gold bar per 10 gram in India has reached an all-time high at 29,600 INR per 10 gram on 30th of April.

What might have caused the different performance of gold? In the developed market, gold price has been see-sawing recently as investors weigh on the economic data in the U.S., policy statement from the Fed, re-ignition of European sovereign debt crisis as well as Central Banks’ gold purchasing actions.

Gold bounced on the news of slower than expected U.S. Q1 GDP growth of 2.2 percent last Friday compared to Bloomberg’s median forecast of 2.5 percent. However, gold retreated slightly on Monday and Tuesday as the U.S. ISM factory index climbed higher to 54.8 in April compared to a forecast of 53 while the China PMI rose slightly to 53.3 in April, the fifth monthly expansion. Investors used the stronger data as an excuse to buy more equities. The news that both U.K. and Spain went into recession in Q1 and expectation that Spain’s high unemployment rate could jump from the current level of 24 percent to 30 percent also stall the gold run.

In India, festival and marriage season demand for gold has helped push the gold price higher. The weak Rupee which declined 19% in the past year caused gold to reach an all-time high despite the fact that gold in US dollars is still 15% lower than the recent peak. Uncertainty in both the Indian economic performance and its investment-grade rating would cause people to seek gold for a safety hedge while a weaker Rupee would bump up local price.

ECB interest rate announcement this Thursday and the U.S. April non-farm payrolls and unemployment rate on Friday are interesting events to watch to gauge the short-term direction of gold.

Austin Kiddle
Sharps Pixley, London

02 May 2012 | Categories: Gold

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