The U.S. Comex gold futures (COMEX:GCZ13) have dropped 1.25% to $1,316 on Tuesday after rising 1.85% last week. After a jump of 4.73% last Thursday, the gold futures retreated almost 2.70% on Friday. After closing at an all-time high last Wednesday at 1,725.52, the S&P 500 Index (CME:SPZ13) has dropped 1.63% by Tuesday this week. The Euro Stoxx 50 Index rose 2.10% last week and dropped 0.15% this week. Since the FOMC meeting last Wednesday, the Dollar Index (NYBOT:DXZ13) has risen for four consecutive days by a total of 0.41%. The clear beneficiary of the Fed's delayed tapering has been the U.S. 10-year Treasury bond (CBOT:ZNZ13) yield, which has declined 20bp to 2.6552% since the start of the FOMC meeting.

Improving External Environments

The September China "flash" PMI jumped to a six-month high at 51.2 compared to an expectation of 50.9. The growth rebound has been helped by better exports. The improving external environment is confirmed by the September E17 PMI, which rose faster than expected to 52.1. The index has been above 50 (expansion) three months in a row. The EU is China's largest trading partner. With Germany's Chancellor Merkel winning a third term, a strengthening euro, and Greece clawing back from defaults, the E17 growth outlook is getting better. However, the U.S. September flash PMI was at 52.8, lower than the 54 expected. The U.S. September Consumer Confidence Index has also declined for four consecutive months. The gold price pendulum swings as a couple of the Fed governors said that a tapering by October or the end of the year could not be ruled out while the U.S. budget headline risks have been increasing and the Dollar Index has stalled.

Investors' Demand

According to the CFTC, the combined short contracts of the gold speculators jumped almost 17% while the combined long contracts declined 5% right before the FOMC meeting. The gold-backed ETP holdings rose about three metric tons on Tuesday, the first increase after 11 days of decline. Year-to-date, the ETP holdings have dropped about 26% to 1,935 metric tons. However, research has shown that in the first seven months of this year, the Chinese consumers have taken up more than twice the amount of the outflow from the SPDR gold ETF. According to the World Gold Council, the Q2 jewelry demand has climbed to 576 tonnes, with both China and India demand jumping by over 50% year-on-year. The Q2 bars and coins demand jumped 78% from a year ago, with the Chinese demand surging 157% and that of India jumping 116%. Thailand, the third largest Asian consumers after China and India, has seen gold demand jumping 58% in Q2 as well. The "battle" between the gold ETP sellers and the Asian consumers continues to be an important one to watch.