Gold drops, political tensions ease and profit-taking emerges
London (Aug 30) Bullion was back below $1,400 on Friday morning, reflecting overbought conditions and an easing of geopolitical tensions. Yesterday’s better-than-expected second-quarter US GDP growth reading also weighed on prices.
Spot gold was last at $1.396.15/1.397 per ounce, a drop of $8.50 on the previous day’s close. The metal had peaked at a three-and-a-half month high of $1,433.95 on Wednesday.
Although the US is considering a military strike against Syrian President Bashar al-Assad’s government after the alleged use of chemical weapons in an attack on rebels in Damascus last week, in which hundreds reportedly died, the UK government has voted against intervention.
“Britain and the US scaled back its recent dialogue over an imminent military intervention in Syria,” James Steel at HSBC said in a note. “Gold may face near-term profit-taking, barring an escalation of Middle East tensions.”
“The short-covering rally since June is largely complete and as predicted, the market appears to be correcting,” ANZ also said. “In addition, the latest better-than-expected US Q2 GDP and drop in jobless claims and higher US dollar also weighed on gold prices overnight.”
US preliminary second-quarter GDP at 2.5 percent beat the forecast 2.2 percent, while unemployment claims were stable at 331,000.
The dollar was steady at around 1.324 against the euro, having gained around 0.6 cents on Thursday.
“The release today of the latest US GDP guesstimate was stronger than expected and took another brick in the wall from the bullish argument,” Triland noted. “If this American growth trend continues the tapering operations may be faster rather than slower.”
The recent run of mildly positive economic data out of the US lends weight to the argument that the US will start to unwind its quantitative easing programme from next month.
The US central bank is currently committed to purchasing $85 billion in new debt per month in an open-ended programme - accommodative measures are supportive of gold because extra liquidity tends to debase the dollar and create future inflationary risks.
Today is fairly data-heavy, with a slew of mixed data out of Europe. German retail sales at -1.4 percent for July undershot the expected 0.5 percent, while the Italian quarterly and monthly unemployment rates were around expectations and the EU-wide rate was unchanged at 12.1 percent.
The CPI flash estimate for the EU at 1.3 percent for August missed the expected reading of 1.4 percent and was below the previous month’s 1.6 percent.
The US will release personal spending and income data, the Chicago PMI and revised UoM consumer sentiment and inflation expectations this afternoon.
“Today’s data may offer some direction but, with a long weekend coming up, today being month-end and key manufacturing data due next week, we suspect traders will be unlikely to instigate any aggressive positioning so we suspect the metals will maintain their recent ranges, a theme likely to continue into early next week,” FastMarkets analyst James Moore said.
In the other precious metals, silver at $23.67/23.72 per ounce was down on the previous $23.77 and platinum at $1,508/1,518 was down $5 but palladium rose $4 to $728/734.
