Gold prices remain policy dependent

The U.S. Comex gold futures (COMEX:GCZ13) rallied 0.74% on Thursday but erased their gains on Wednesday, ending at $1,308.50. The Dollar Index (NYBOT:DXZ13) jumped 0.45% to 80.845 on Thursday, rising 0.16% week-to-date. The S&P 500 index (CME:SPZ13) was down 0.82% while the Euro Stoxx 50 Index was up 0.33% in the past two days. The S&P 500 plunged 1.32% while the Euro Stoxx 50 Index dropped 0.44% on Thursday.

Back to Stimulus Bets

The Q3 U.S. GDP climbed 2.8% annualized versus an expected 2.0% while the latest weekly jobless claims declined by 9,000 to 336,000. The stronger U.S. data caused both the stocks and gold prices to fall as the market became worried that the Fed will taper sooner than expected (March 2014). Indeed, a recent study by SLJ Macro Partners found that the Fed policy explains 40% of the equity price changes. The stronger U.S. growth data overshadowed the cut in interest rate of 0.25% by the ECB to combat a low inflation rate of 0.70% in October. The ECB is likely to continue its accommodative monetary policy as the Euro-economies remain fragile. In China, exports rose 5.6% year-on-year in October compared to a median forecast of 1.7%, leading to the biggest monthly trade surplus of $31.1 billion for this year and likely reflecting the U.S. recovery.

Central Bank Gold Actions

A study by Precious Metals Insights revealed that China has likely added 300 metric tons of gold in the first six months of 2013 against a global gold production of about 2,700 tonnes. The Chinese demand has helped to support gold prices this year when the price reached a 34-month low in June. While China added gold, Russia has reduced gold in September, and Mexico has continued to cut holdings. The central banks are expected to add 350 tons of gold in 2013 versus 534.6 tons in 2012.

What to Watch

Starting Nov. 9, the Chinese Communist Party will meet for four days discussing further economic reforms. We will also watch the October U.S. non-farm payrolls and the unemployment rate on Nov. 8, the October CPI and industrial production on Nov. 9, the Eurogroup meeting on Nov. 11, the Q3 preliminary Japanese real GDP and the E17 September industrial production on Nov. 13, the Fed speech on Nov. 14 as well as the E17 Q3 preliminary real GDP and the U.S. October industrial production on Nov. 15.

About the Author
Austin Kiddle

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

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