Gold looks to Indian festival demand, U.S. elections

The U.S. Comex gold futures bounced up and down quietly and were essentially flat in the past two days, ending at $1,712.10 on Tuesday. The U.S. stock markets were closed on Monday and Tuesday as Hurricane Sandy, straddling 900 miles, swept through New York and New Jersey and other parts of the Northeast region. The Euro Stoxx 50 index rebounded about 0.80% after dropping 1.81% last week. The Dollar Index fell 0.38% on Tuesday after rising 0.2% on Monday on the report that the hurricane damage may be a little less than projected.

A couple of economic news helped to support gold prices. Last Friday, the U.S. reported Q3 GDP growth at 2% p.a., higher than the Bloomberg median forecast of 1.8%. Higher growth and therefore more inflation may help gold price. On Oct. 30, the Bank of Japan further boosted its monetary policy to combat GDP slowdown by expanding its asset purchase program by ¥11 trillion to ¥66 trillion while offering unlimited low interest rate loans at the overnight call rate currently at 0.1%. The October China Flash PMI rose to 49.1 from 47.9 in September while the industrial profits rose 7.8% year-over-year in September after declining in the previous five months, indicating the economy may rebound in Q4.

In November, Europe will strive to keep Greece within the Eurozone and the Troika will have to decide if Greece meets the prerequisite conditions for a €130 billion aid. The October Eurozone economic sentiment indicator came out at 84.5, slightly better than expected. Still the German Chancellor Merkel and the IMF Managing Director Lagarde both warned of the fragile global economy and the untenable debt levels in major economies. In the U.S., Hurricane Sandy may cause a damage of $20 to $25 billion according to private estimates, although some rebuilding effort might mitigate the GDP losses.

Some buying on dips was seen as gold futures bounced decidedly off the $1,700 handle. Gold-backed ETF holdings are still at a record high level while there are signs that physical demand has increased in India and China. The Indian peak festival seasons which include Dussehra and Diwali and the marriage seasons may help to bolster gold prices from October to early next year.

About the Author
Austin Kiddle

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

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