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Will better news from Europe and the U.S. derail gold price increase?

Will Better News from Europe and the U.S. Derail Gold Price Increase? After touching a recent high of $1,755 on 23 November, the U.S. Comex gold futures retreated about 0.7 percent to end at $1,742.30 on Tuesday. Year-to-date, the gold futures are up 11.20 percent, compared to the S&P 500 Index which is up 13.51 percent, the Commodities CRY Index which is down 2.47 percent and the Dollar Index which is up 0.28 percent. The S&P 500 index fell 0.72 percent while the Euro Stoxx 50 Index declined 0.53 percent this week.

Finally, a Deal for Greece
The gold price and the Euro/Dollar got a boost on 23 November as the market anticipated a Greek deal. On 26 November, the Euro-area finance ministers and the IMF agreed to reduce interest rates on Greece’s debt, permit an interest rate suspension for 10 years on the temporary rescue fund and lend money to Greece to buy back bonds, avoiding a debt cut for now. The ECB will also transfer its profits from its Greek bond purchases into the fund. These measures are expected to cut Greece’s current 170 percent debt-to-GDP down to 124 percent in 2020. As investors began to question the details of the measures, both the gold price and the Euro/Dollar softened. Greece has to adhere to a fiscal austerity program which includes a yearly budget surplus of 4 percent of GDP. Besides, the Euro debt crisis is by no means resolved.

Fiscal Cliff Concern Despite Better Economic News
The U.S. Conference Board’s consumer confidence index surged to a four-year high to 73.7 in November compared to a median estimate of 73. Retail spending in the four days since Thanksgiving rose about 13 percent from a year ago. Property values in the 20 U.S. cities rose 3 percent year-on-year in September, the fourth month of yearly rise. Despite the better economic news, the U.S. Senate Majority Leader remarked that progress on the congressional budget debate has been disappointing, causing stocks to sell-off.

Demand for Gold Rises Again
The net non-commercial combined positions in gold rose 3.76 percent to 202,327 contracts in the week to 20 November according to Bloomberg. Gold demand has recovered in India in Q3 compared to a dismal first half. In fact, Indian demand for gold was at 612 tons in the first 9 months, beating China’s 605 tons according to the World Gold Council (WGC). Gold bar price in India reached a record high of Rupee 32,950 per 10 grams on Monday as demand for gold increases during the wedding season and the Rupee continues to weaken. Gold-backed ETPs reached another record on 26 November at 2,606.974 metric tons. According to the WGC, the biggest threat to gold price outlook would be a change in the current negative economic world view. However, economic improvement in the West and Japan still looks a long way away.

Robert Jilles
Sharps Pixley, London

28 Nov 2012 | Categories: Gold

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