Gold awaiting more cues from the Fed

The U.S. Comex gold futures (COMEX:GCZ13) retreated 0.52% in the past two days ahead of the FOMC meeting announcement on Wednesday while the Dollar Index (NYBOT:DXZ13) rose 0.52%. This week, the S&P 500 Index (CME:SPZ13) and the Euro Stoxx 50 Index have risen 0.70% and 0.53% respectively. During Asian Wednesday morning, the gold futures traded down about $5 to $1,340 while the U.S. 10-year government bond (CBOT:ZBZ13) yield hovered around 2.50%. Month-to-date, the gold futures rose 1.43% although the prices have dropped close to 20% year-to-date.

U.S. Consumers and China Money Market Rates

The U.S. September retail sales excluding autos rose 0.4% compared to a 0.1% increase in August, helped by better electronics sales and the ongoing housing recovery. The S&P/Shiller Index jumped 12.8% year-on-year, the highest percentage gain since February 2006. However, the October Consumer Confidence Index plunged nine points from last month to 71.2, reflecting consumers' uncertainty with the budget talk and the employment outlook. In China, traders watch the continuous rising seven-day repurchase rate, an indicator of funding conditions, which has risen to a three-month high of 5% on Oct. 29. Tightening financial conditions amidst a rebound in economic growth and inflation in China unnerves market, driving the Chinese gold price to close below the London gold fix the first time this year. In India, the central bank raised interest rate a second time to 7.75% to combat a close to 10% inflation rate.

Investor Flows

As the Dollar Index has recovered from a nine-month trough, gold prices have correspondingly retreated. Worldwide gold-backed ETF holdings rose the most in a year on Oct. 22 although the holdings have fallen about 27% over a year ago. Speculators increased their net long positions by 16% to 84,666 contracts for the week ending Oct. 8 as the U.S. budget talk intensified, with the shorts positions falling by about 69% since the recent peak in early July. Russia sold 0.37 metric tons of gold in September during the time when investors redeemed funds massively from emerging markets. The market does not expect the Fed to alter its QE positions on Wednesday and will monitor the press announcement closely.

About the Author
Austin Kiddle

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

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