Gold prices dependent on U.S. economic data and Fed announcement

The U.S. Comex gold futures (COMEX:GCU13) rose 0.52% on Monday before declining 0.33% to end at $1,324 on Tuesday, the day before the FOMC meeting. Year-to-date, the gold futures dropped almost 21% although the prices jumped 8.2% in July. In contrast, the Dollar Index dropped 1.57% in July but rebounded 0.21% this week to 81.829 on Tuesday. The S&P 500 Index dropped 0.34% this week after being flat last week while the Euro Stoxx 50 Index rose 0.63% after rising 0.95% last week.

Mixed Global Economic Data

Japan's June industrial production unexpectedly dropped 3.3% from May and declined 4.8% from a year ago compared to the expected -2.6%. The success of Abenomics hinges on a rebound in nominal growth, inflation, and wages. The U.S. reported the biggest yearly gain in the S&P/Case-Shiller housing index in seven years. In both April and May, the housing index climbed about 12% over a year ago, confirming the housing recovery momentum. However, the 30-year fixed mortgage rate has jumped about 1% this year, which may slow down the housing recovery. According to Barclays, the gold prices remain U.S. macro-centric and will likely react negatively to any positive U.S. employment surprises. The market expects the Fed to shed more light on the timing of the QE tapering on July 31.

Speculators Raised Gold Bets

The CFTC managed money combined total positions in gold jumped to 70,067 contracts as of July 23 from a recent low of 31,197 contracts as of June 25. In particular, the combined short contracts declined from a high of 80,147 as of July 9 to currently 52,429. The speculators believe that the Fed is unlikely to hurry the tapering. Meanwhile, the central banks of Russia, Ukraine, and Kazakhstan added 4.2 tonnes of gold to their reserves. In China, the first two gold-backed ETFs raised about 1.6 billion Yuan, equivalent to about 6 tonnes of gold. However, the new buying of gold has not been able to offset the decline in investment demand this year.

About the Author
Austin Kiddle

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

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