Gold supported by ETF, central bank buying

After falling 0.94% last week, the U.S. Comex gold futures rebounded 0.52% this week and ended at $1,723.60 on Tuesday. The S&P 500 index and the Euro Stoxx 50 index surged 2.05% and 3.39% this week. Crude oil futures have been especially volatile, surging 3.01% on Monday but falling 2.83% on Tuesday because of rapid development in the Middle East.

Gold surged on Monday as the market anticipated a solution to the U.S. fiscal cliff while Israel-Hamas fighting intensified. Gold price retreated on Tuesday as soon as there were some signs of a cease-fire. Situation there remains fluid and uncertain, underpinning the gold price.

The U.S. housing starts beat all estimates and rose 3.6% in October at an annual pace of 894,000. Ben Bernanke echoed in his New York speech today that residential investment could spur economic recovery and jobs growth. He warned that the fiscal cliff would throw the U.S. back into a recession and reiterated that the Fed's policy would remain accommodative until the economy shows a firmer recovery.

The Bank of Japan kept interest rate between zero and 0.1% and did not add to its monthly purchases of government bonds. Market expects that the BOJ will be under pressure to ease further in the December meeting which will happen three days after the Japanese Prime Minister election.

Gold investors are cheered by the report that the gold-backed ETP holdings reached a new record at 2,604.933 metric tons as of Nov. 19. India's gold import has rebounded by $2.5 billion during September and October, overcoming the rise in the import duty. Festivals and wedding seasons would continue to support Indian demand in the coming months. The U.S. SEC filings showed that Soros' gold holdings surged 49% in Q3 as prices rose 10.4% last quarter. The IMF also reported that central banks have added gold to their reserves continuously for 19 months.

Now that France has lost its triple-A rating a second time, the stake has been raised for the EU leaders to reach an agreement on the 2014 to 2020 EU budget and put Europe back on a path of recovery as the summit begins on 22 November.

About the Author
Austin Kiddle

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

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