What a fantastic way to start the week – the gold price hit a 3-and-a-half month high this morning thanks to a weaker dollar and concerns over the US economic growth. Improved data from both France and Germany is likely to continue to put pressure on the Euro/dollar rate.
Given gold’s 28% fall last year, the climb of 10% since the beginning of the year has taken many traders by surprise.
Last week’s rally in the gold price was its longest seen in six months. The ninth-consecutive rise in US gold futures was the longest climb since July 2011. Speculators’ bets in gold futures and options have also increased to a three-week high.
In slightly less bullish action, holdings in the SPDR Gold Trust fell by 5.1 tonnes on Friday, the first fall in nearly three weeks. Holdings have remained fairly constant since the 480 tonnes outflows in 2013. Paulson & Co maintained their holdings in the trust for the fourth-quarter of 2013.
The weather was blamed once again on Friday for the slow US economic recovery. Manufacturing data joined the already disappointing retail and job sector data, as the cold weather was blamed for the set back in the recovery this quarter.
The weak US data and ongoing wealth diversification are seen as the main drivers for the gold price at the moment. Some interesting research has been produced of late, by major banks, indicating that investors are looking to diversify into gold. However it is data from China’s economy which is bringing about the most attention in gold price discussions.
Economic news continues to point to a potential bursting of the credit bubble. Whilst few are in doubt over the short-term growth potential in China, the government is likely to run into trouble controlling the amount of credit available in the country.
In the US, there is the gift that keeps on giving in terms of gold’s performance. Not only was Janet Yellen very dovish during her testimony last week but the Republican Party backed down from the ongoing fight over raising the budget ceiling.
Questions are being raised by some analysts as to whether or not gold has been overbought, suggesting that the price could be due a correction. At the time of writing it is at $1,325, for some analysts $1,326 is a key level that might trigger some selling.
Speculation is climbing in India over the possibility that import duties may be cut in the near future. As a result premiums on Friday fell by 17%, to their lowest in 17 months, as buyers anticipated the import duty cut. Note, no announcement has been made so far.
This week look out for flash PMI data for China, the US and the Eurozone as well as the first release of fourth-quarter growth for Japan. Last month’s survey data from China suggested a slow-down in the economy.