A week in gold: US data trumps safe haven demand

New York (May 3)  Gold had another difficult week as US data pointed to an improving economy and more tapering by the US Federal Reserve.

As expected, the Fed trimmed its bond buying programme by a further US$10bn a month to US$45bn on Wednesday with a comment that it would continue to reduce its monetary stimulus in “measured steps”.

Employment and job creation in the US have been central to the Fed’s monetary policies and the key monthly non-farm payroll number on Friday indicated 288,000 jobs were created in the US in April, compared to forecasts of 215,000 and a revised 203,000 in March.

It was the best month for jobs creation since January 2012, with the rate of US unemployment also falling to a five year low of 6.3%.

The US dollar and bond yields rose as observers suggested the figures may be enough tempt the Fed to accelerate its tapering policies.

Gold’s record high was sparked by policies that encouraged low interest rates and a weak dollar, both of which traditionally to move counter to the gold price.

Not even an escalation of the violence in Ukraine provided much safe haven support.

Battles erupted Friday as Ukrainian forces attempted to remove pro-Russian militia from key buildings in the east of the country.

Spot gold was trading flat at US$1,284 just ahead of the US open and was heading for a drop of about US$15 on the week.

Another major broker was again talking down the price with Morgan Stanley this week suggesting that it had already seen its best for 2014.

The US broker expects the price to average $1,168 in the second half of 2014 and to fall again to $1,138 over 2015.

Gold is still some 7% up since the start of the year, but the bears point to a seeming reversal of two of the trends that have sparked that rise.

Chinese demand has slowed sharply after a strong start to the year as disappointing economic data has sent the yuan lower and pushed up the price of gold to local consumers.

There is still huge uncertainty about just how much gold have been bought by China over the past year or so as there are no official estimates, but a sharp fall in premiums for physical gold in Shanghai suggests the appetite has waned.

Gold in the first quarter was also helped by a slowdown in sales through exchange traded funds (ETFs), but sales have picked up again recently with holdings in SPDR Trust, the largest of the gold-backed fund, at their lowest level since the start of 2009 on Thursday.

Outflows from SPDR were 25.1 tons last month after an aggregate inflow of 19.9 tons in February and March.