A week in gold: Gold lower but physical demand picking up
London (Aug 1) Sentiment over gold took a hammering this week, though the performance of the metal was not that bad and it was heading higher again on Friday, albeit modestly.
The gloom stemmed primarily from US economic data where GDP rose by 2.3% between April and June while the first quarter was also revised up to growth of 0.6% instead of a 0.2% decline.
The news followed a latest Fed meeting on interest rates that had gloomy connotations for the gold price.
Fed chair Janet Yellen again gave little away but dedicated Fed watchers honed in on the comments that job growth was ‘solid’ as an indication a first rise can’t be too far away.
Higher interest rates should boost the dollar and US treasuries, both of which are traditional alternatives to holding gold.
Moving to China, where Chinese buying of bars and coins fell by 26% year-on-year, its weakest second quarter since 2009. Jewellery purchases fell by 23% year-on-year.
Thomson Reuters GFMS says Chinese demand has been affected by the rise in equity markets, with the recent slump in share prices having little impact so far.
It hasn’t all been bad news.
Earlier in the week, Joni Teves at UBS noted that there are signs of physical demand creeping back that investors could get excited about.
“Volumes are not necessarily exceptional, but the fact that it's around should offer some reassurance to gold longs [buyers] and perhaps encourage shorts [sellers] to lock-in some of their profits” she said.
“Interestingly, demand out of the US – an unlikely contender – has actually been better than expected.”
One new gold coin, sold completely this week within hours of its being released, with the US Mint reporting demand is the highest it has been for two years.
The Mint has also reintroduced its sales of Silver Eagle coins (1 oz) following a three-week suspension.
Australia is also seeing better demand according to the Perth Mint, which has reported a surge in demand for physical gold since the price dropped below US$1,100 per ounce.
The Mint is seeing strong demand for kilo bars which go to Asia, particularly India, China and now Thailand.
The next hurdle for gold is Friday’s non-farm payrolls number for July in the US.
Consensus forecasts at the moment are for around 215,000 new jobs to be have been created this month.
A figure well ahead of that may dot the Is and cross the Ts for the Fed to raise rates.
Spot gold was trading at around US$1,093 an hour in to trading Friday , down around US$6 over the week.
Source: ProactiveInvestor
