Gold Price Rises In Face Of Central Bank Decisions

Will they? Won’t they? Questions remain regarding the Fed’s stimulus plans. Weak manufacturing data, the lowest in four years, from the world’s largest economy prompted hopes that QE would continue. The weak dollar prompted the Indian rupee to rise from its 11-month low. Gold climbed 2% yesterday, its most in two weeks, following the weak data and a fall in the US Dollar index. Holdings in the gold-backed SPDR Gold Trust ETF (GLD) remain unchanged after rising on May 29th.

We are clearly going to see the debate over central bank monetary support drive the gold price in the short term. However, as we have seen in the last month, such speculation hasn’t gotten us very far and there has ultimately been little impact on the gold price. Given Bernanke’s comments that US jobs and housing data will affect the FOMC’s decision over QE, eyes remain straight ahead to Friday’s non-farm payroll data.

The Reserve Bank of Australia have decided to hold rates at 2.75%, a historic low. Many analysts had expected there to be a further rate cut and as a result the Australian dollar fell, before recovering quickly. The Bank did however express concern over the strength of the Australian dollar, despite it dropping in value since the last rate meeting.

Physical gold imports

Further to WGC comments late last week, India’s May gold imports were yesterday confirmed to be 162 tonnes and not the 262 tonnes reported earlier in the day. The figure remains much higher than imports of 142.5 tonnes, seen in April.

Gold demand in Asia is not expected to stay at levels previously seen in April and May. Many analysts see this as a given should the current gold price remain above $1,400/oz. If prices fall below $1,300 then the next level of support is expected to be $1,154/oz where this is likely to be another round of frenzied buying.

Data from China shows China’s demand for coins and bars reached 109.5 tonnes in Q1, an increase of 22%. Physical demand from Asia, is not expected to affect the spot price dramatically. This is more likely to come down to the perceived strength of the US economy and the expected response of the FOMC.

Numbers released from the US Mint yesterday showed that sales of American Eagle gold coins fell last month from April’s 209,000 ounce sales to 70,000 ounces. Silver Eagle coins were also down last month, by 15%, from April, however sales are expected to reach record levels this year a total. 3,458,500 ounces of Silver Eagles were sold in May 2013, up from 2,875,000 ounces in May 2012.