Daily Nugget: Gold Prices Fall To 5-Month Low

Yesterday the gold price fell to a five-month low on the back of upbeat economic data and a stronger US Dollar.

Once again a release of economic data prompted speculation that tapering would come sooner rather than later. The Institute for Supply Management’s manufacturing activity index for November rose to a two-and-a-half year high. This is the six consecutive month manufacturing activity has risen, however the data conflicts with various factory activity measures which means little can be discerned from the figures.

The rest of the week will be focussed on lots of US data and the central bank meetings on Thursday. Whilst everyone is thinking about non-farm payrolls on Friday, first up is Wednesday’s release of the US Federal Reserve’s Beige Book.

Barclays have forecast a stronger-than-expected reading of 200,000 increase in nonfarm payrolls for November. If such results are seen, on Friday, then the dollar is likely to head higher whilst gold will feel the pressure.

Central bank meeting surprises

The three central banks due to hold monetary policy meetings this week, the European Central Bank, the Bank of England and the Reserve Bank of Australia, are not expected to change interest rates. If one is going to be surprise us, then it will be the ECB. Draghi and his aggressive approach to easy monetary policy has taken markets by surprise more than once.

Another dampened gold forecast

UBS has now cut its 2014 gold price forecast to $1,200 an ounce from $1,325. They attribute the weak price action to a lack of ‘positive catalysts’ going forward and weak investor sentiment. The latter is a factor many are attributing to gold’s expected performance in 2014. However, this is based on ETF outflows and Western demand. China demand will no doubt continue to test the supply chain of the physical gold market, whilst all eyes are on Iran and its trading partners to see if the lifting of sanctions really does mean the end of gold trade agreements.

According to Deutsche Bank, one of the factors responsible for the recent pick up in Asian gold buying is the tension over air defence between China and other nations, in the East China Sea.

Other asset classes continue to be favoured by Western investors. This was the message at least in the results of the Barclays Global Macro Survey, released last week, which showed 60% of investors see equities as the most profitable investment class over the next three months.