A week in gold: Non-farms provide some respite
London (Apr 5) Gold staged a rally after the US non-farm payroll numbers of Friday, but the metal was still on the border of falling for a third straight week.
On Thursday, the price slipped below US$1,280 as the dollar rallied further after European Central Bank president Mario Draghi again promised stimulus action without taking any.
The US jobs data, meanwhile, revealed 192,000 jobs were created in the US in March compared to forecasts beforehand of 200,000 or higher while the unemployment rate was unchanged at 6.7%.
Even though the figures were slightly less than consensus, economists said it was still the fastest rate of jobs growth for over six months.
Ahead of the figures, Standard Bank’s Walter de Wet said that a disappointing employment data should result in a small rally in gold, but he would expect it to "fade fast".
“As before, our view is based on the expectation US long-term rates will rise this year."
Since the middle of 2013, expectations of where US bond yields are heading have been climbing steadily.
Consensus forecasts are for US bonds yields to reach 3.38% by the final quarter of 2014.
The forecast implies that expectations for the 10-year real interest rate in the US have risen from 1% a year ago to 1.5% currently, said de Wet
“For gold, that is a large increase, and, should consensus turn out to be broadly correct, rising yields will continue to put downward pressure on gold as there is a strong negative correlation between the gold price and real long-term US bond yields,” he said.
Standard Bank also believes that physical demand for from Asia, both institutional and consumer, is set to disappoint this year and it will need lower prices to stimulate demand.
Indeed, reports from China this week have indicated that demand has slackened because of the weakness of the Chinese yuan.
Physical prices in Shanghai were said to be below spot prices currently, compared to a premium of about $20 an ounce in January.
That Chinese demand was a major feature behind gold’s rise at the start of 2014, but has faded after the New Year celebrations.
Chinese banks have also imported less gold over the past month due to falling demand following the festival season, with reports that some banks are hanging on to stock that they plan to sell once prices improve.
South African broker Investec said that if gold prices continue to weaken the banks holding inventory may have sell the metal at a loss potentially depressing local prices still further.
It was not all gloomy however, with India said to be contemplating lifting some of the restrictions that have curbed imports in to the country.
India lost its place as the number consumer market for gold in 2013 due to a surge in buying from China and the actions of the Indian government.
Spot gold was trading at US$1,305 up about US$13 on the week as London markets closed Friday.
Source: proactive.investor
