Gold enthusiasm wanes on stronger economic data

The U.S. Comex gold futures dropped slightly by 0.1% in the past two days and fell 0.85% this week, ending at $1,744.70 on Thursday. While the Dollar Index rebounded on Thursday by 0.44%, it is still down by about 0.38% this week. The world stock markets did well with the S&P 500 Index rising 2%, the Euro Stoxx 50 Index surging 4.26% and the emerging markets stocks jumping 1.67% this week.

The enthusiasm for gold has waned a bit given stronger data from the U.S. and China, which may mean policy makers do not need to stimulate the economy as much. The September housing starts in the U.S. rose 15% while an index of U.S. leading indicators jumped 0.6% in September. Still it is highly unlikely for the Fed to change its QE3 decision in the October FOMC meeting. After slowing down for seven quarters, China's economy appears to be bottoming out. Q3 real GDP rose as expected by 7.4% year-on-year, industrial production in September jumped 9.2% while retail sales climbed 14.2%.

The events at the EU Summit are unnerving gold investors as well — Spain still has not requested any formal aid and appears to wait until the EU leaders approve the banking supervision process. The new system, to be headed by the ECB, is expected to cover all the Euro-area banks beginning Jan. 1, 2014, a year later than planned. There are no agreements yet on how large the ECB's authority should be or how the banking losses should be shared.

While gold prices are going back and forth because of economic data from the major economies and political discussions in Europe, the World Gold Council cited four key reasons why gold price is supportive in the long term: Rising inflation risk, rising economic imbalances because of distorted low interest rates, weakening trend of major currencies, low real rates and continuing demand for gold by emerging countries.

The next few important events to watch will be the U.S. September existing home sales on Oct. 19, the U.S. Presidential debate on Oct. 22, the FOMC meeting conclusions, the October Eurozone manufacturing PMI and the October Chinese flash HSBC manufacturing PMI on Oct. 24 and the U.S. Q3 GDP data on Oct. 26.

About the Author
Austin Kiddle

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.

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