Gold rallied sharply today to a high of $1,833 – a rise of $42 or nearly 2.5% – with most action coming in the hour leading up to the New York opening as markets await the important U.S. Consumer Confidence figures this afternoon. Gold has been yo-yoing on U.S. data and today's rise follows a corresponding fall yesterday on Personal Spending figures.
Personal Spending data accounts for an estimated 70% of economic activity and yesterdays figures were ahead of expectations, growing by 0.8% which is the largest in five months. The 0.8% figure follows on from the modest levels of 0.3% and 0.2% in the preceding 2 months. We have a swathe of data this week ending with nonfarm payrolls and the markets seem to have been particularly sensitive to jobs data lately. We fully expect increased gold price volatility for the remainder of the year.
While in North America the markets turn on economic data, in Europe concerns center on possible sovereign debt default. In that regard, Italian and Spanish 10-year bonds have again nosed just above the 5% level (considered difficult but manageable) but still well short of the critical 7% threshold. Bonds were last quoted at 5.13% and 5.05% respectively.
Today also marks the first day of the gold buying season. It is the first day of Eid which is a Muslim holiday marking the end of Ramadan and traditionally a period of strong gold buying in the Middle East. This is followed by Diwali in October which itself is followed by the Indian Wedding Season and in turn this is followed by Christmas in the West and finally the Chinese New Year.
2011 promises to be a dramatic one for gold and we forecast gold will end the year closer to the $2000 level all things being equal.
Ross Norman is the owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.