Gold Rebounds As U.S. Growth Revised

Gold futures hit a three year low yesterday as confidence in the safe haven status of the economy continued to wane.

Both gold and silver are set to see their worst ever performances, percentage wise, historically recorded in a quarter. The gold price has fallen 22% since April. In the last eight sessions gold has fallen by 12%. This morning it is picking itself up somewhat so let’s hope this session breaks a trend.

Yesterday gold for August delivery on COMEX fell to $1,229.80, at the time of writing it has recovered to $1,239.80.Silver has recovered 1.8%.

US GDP error boosts gold
Growth on the US economy now turns out to be less than originally estimated in Q1 and has been revised down from the annualised rate of 2.4% to 1.6%. GDP is expected to have fallen as US citizens cut back on spending as a result of the 2% increase in payroll tax. Confidence remains underpinned by the improving labour and jobs markets.

This amendment worked against Tuesday’s positive data releases from the US economy. The positive housing, durable goods orders and consumer confidence data each seemed to be on message with Bernanke’s statement last Wednesday.

The amendment in US GDP appeared to halt the bleeding out of ETFs yesterday. On Tuesday 23.2 tonnes of ETF outflows, the most since mid-August. Having been at been at 1,350.82 tons at the end of 2012, the world’s largest gold ETF, SPDR Gold Shares now sits at 969.5.

Here in the UK, ahead of the consumer spending review, the Bank of England said that confidence in the financial sector reminds weak and increasing interest rates remain a threat to vulnerable lenders.

Draghi, along with other central bankers this week, has remained dovish after reiterating that the ECB will remain accommodative with monetary policy for the foreseeable future. There is reportedly speculation that Bernanke feels his comments were read as too hawkish last week.

Indian gold loans
Physical demand from the world’s biggest buyer – India – is also under pressure as the rupee continues to fall against the dollar. Yesterday it fell to below 60 rupees for the first time. Therefore the usual buying spree we usually see following such falls in the gold price are not particularly forthcoming. This morning fresh data shows a larger than expected narrowing in the current account t deficit which has in turn prompted the rupee to recover.

The RBI continued to make moves to dissuade gold investment this week, on Tuesday they ordered regional rural banks to no longer offer loans against gold over 50 grams. This will likely have a significant impact on gold demand given rural areas account for 60% of the country’s gold bullion demand.

Joining the bandwagon of new gold forecasts was ABN AMRO who yesterday adjusted their year-end 2013 gold forecast to $1,100, down from $1,300 and 2014’s year-end figures to $900, down from $1,000.