Gold price movement dictated by U.S. economic tone

While the U.S. Comex gold futures climbed $3 this week to end at $1,575.10 on Thursday, the global stocks and commodities markets surged in the past week. The S&P 500 index jumped 1.71%, the Euro Stoxx 50 surged 2.83% and the MSCI World Index rose 1.65%. The CRY Commodities index also inched up 0.82% this week. After rising for four consecutive weeks, the Dollar Index retreated 0.28% week-to-Thursday.

Central Bank Meetings Set the Tone This Week

The outgoing Bank of Japan governor did not change the asset purchases program at his final BOJ meeting, leaving his successor lots of room to stimulate aggressively. Bloomberg reported that in the past five years, the BOJ increased its balance sheet only by 50% compared to 250% by the U.S. Fed and 200% by the ECB, suggesting that the BOJ can still do a lot more to end deflation. The Bank of England did not change the size of the bond-purchase program either. The ECB governor kept the policy rate unchanged as well even though the ECB governor has revised down his GDP growth forecast for the Euro-17 by 0.2% to -0.5% in 2013 and has further revised down the 2014 growth to 1%. He believes that inflation will be 1.3% instead of 1.4% in 2014. Although the central banks did not ease further, economic news remain far from bullish, giving hope to gold investors for further stimulus down the road.

Stronger Economic Data Present Headwind for Gold

Better macro data have been released in the U.S. The weekly jobless claims unexpectedly fell by 7,000 to 340,000, reaching a six-month low. Based on the recent Federal Reserve Flow of Funds report, household wealth rose to a five-year high in Q4 2012 due to rising home prices. The net-worth level peaked at $67.4 trillion compared to the current level of $66.06 trillion. The underlying improving tone in the U.S. economy has prompted investors to buy equities and reduce their bets on gold prices. Even Japan reported a much higher-than-expected GDP growth of +0.2% in Q4.

Upcoming Data to Watch

The key data to watch will include the U.S. non-farm payrolls and the unemployment rate on March 8, the February China industrial production data on March 9, the February U.S. retail sales on March 13, the EU summit in Brussels on March 14-15 and the February U.S. industrial production data on March 15.

About the Author
Austin Kiddle

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

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