Daily Nugget: Gold Prices Fall On US Data

Gold prices fell yesterday following the release of US business data that showed activity picked up last month. The Institute for Supply Management’s non-manufacturing index rose to 55.4 in October, previously it had been forecast to rise to 54. This provided a boost to the US dollar and renewed speculation that the Federal Reserve would look to start tapering in Decembe

Gold for December delivery settled at its lowest yesterday since October 16th, having climbed 0.1% in the previous session.

Gold prices in easy ECB

Speculation is mounting that the ECB will announce easier monetary policy, with some believing it may even cut rates. It is unlikely the ECB will go as far as cutting rates but it may look to ‘talk rates down’, and from the US FOMC, we have seen the power of talking things down.

Whilst this decision won’t be announced until tomorrow, this has been enough to boost the dollar index placing pressure on the price of gold.

Should the ECB indicate that it will reduce rates in the short term, this will be supportive for the gold price long-term. Should the Euro trade weaker following the announcement, this may not translate into the gold price. Instead, it is likely that the gold price has factored such an ECB announcement in already.

A rate cut had not been considered by commentators until the much weaker-than-expected inflation data was released on October 31st and shows inflation last month dropped to 0.7% year-over-year.

A European Commission report released yesterday said that growth will remain weak, the single-currency economy is expected to grow by just 0.5% in the latter half of 2013. Overall growth is expected to be 1.4% next year.

More easy money

Speaking of easy monetary policies, the poster-child for such things, Japan sees its central bank meet this morning. Ahead of the monetary policy meeting the governor told the press that the bank would take ‘appropriate policy adjustments without hesitation,’ in order to meet its 2.0% CPI target.

Data from India shows gold demand failed to pick up over Diwali weekend, a time when gold buying is usually high. Gold retailers in India are referring to this festival as the worst in 20 years in terms of gold demand. However, with every cloud comes, literally, a silver lining. According to Reuters silver demand in India has doubled in 2013 compared to the full-year of 2012.

Gold demand generally in Asia seems to have tempered somewhat, in India premiums above London prices have fallen whilst China is yet to begin stocking up for Chinese New Year.

China’s economic plan to include gold?

Speaking of China, it also had positive economic news yesterday, its services PMI rose to 52.6 adding to a recent run of positive data. Later this week the Chinese Communist Party will meet to unveil major plans and economic reforms. Given the impact these have had on gold in recent years, it will be worth looking out for any developments.