Gold continues to price in a Fed's tapering in September

The U.S. Comex gold futures (COMEX:GCZ13) were unchanged on Monday but fell 1.64% on Tuesday. The gold futures have fallen 2.30% this month and 18.62% this year. The CRB Commodities Index fell 1.11% and the crude oil futures (NYMEX:CLV13) plunged 2.84% during the past two days as the prospects of a diplomatic solution to the Syrian problem have risen. The S&P 500 Index rose 1.74% this week after rising 1.36% last week while the Euro Stoxx 50 Index jumped 1.71% after surging 3.02% last week. The Dollar Index (NYBOT:DXZ13) fell 0.40% this week to end at 81.821 on Tuesday while the U.S. 10-year government bond (CBOT:ZNZ13) yield settled at 2.9681 percent after breaching 3% during Asian trading on 6 September.

Looking to Fed's Tapering and Chinese Growth Rebound

The gold futures rebounded about 1% last Friday when the U.S. reported that 169,000 non-farm payrolls were added, which was lower than expected, and the unemployment rate fell to 7.3% in August. Barclays believes this still warrants the Fed to start reducing asset purchases in the September FOMC meeting from $85 billion a month currently to $70 billion, with a halt to asset purchases in early 2014. In China, macro data continue to point toward stabilization and improvement. The August industrial production rose 10.4% year-on-year compared to the expected 9.9%. Exports and imports rose 7.2% and 7.0% year-on-year in August compared to 5.1% and 10.9% in July. The Chinese leaders state that a slower growth is a deliberate policy as the economy goes through structural changes and a 7.5% growth target appears likely. The Chinese growth rebound is bullish for gold prices as well as commodities in general.

Shorter-term Factors at Play

The imminent threat of a Syrian war has receded as the U.S. senators are evaluating the Russian proposal to Syria to remove its chemical weapons. Investors have resumed selling their gold-backed ETFs in September after the stabilization in late August. Gold speculators have increased their combined net positions four weeks in a row to 101,396 contracts according to the CFTC. The Comex gold inventories have plunged 36% this year when physical demand for gold and physical delivery have increased in response to the plummeting prices in April and June. Nevertheless, the upcoming FOMC meeting and the U.S. economic data remain the larger factors on the direction of gold prices.

About the Author
Austin Kiddle

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

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