Gold Rises On US Pressure

Last week was uncomfortable for those in gold investment as the gold price fell below $1,300 once again, however the non-farm payroll data was quick to remind us of the delicate nature of the so-called US recovery.

Friday’s non-farm payroll data showed the lowest increase in jobs for the last four months, putting the US dollar on the back foot to gold bullion which rose back above $1,300. Observers expect the FOMC to look for more evidence of a strong US economy before embarking on QE tapering.

This morning the gold price has held steady following Friday’s gains. Concerns that the Fed will taper QE imminently have subsided, for now.

The payroll data came as a shock to those who had expected further signs of the US recovery. On the 31st July the US Commerce Department said the economy grew at a faster pace than expected; the unemployment rate dropped to its lowest since December 2008 and manufacturing grew at its fastest pace for over two years.

Despite Friday’s gains in the gold price, holdings in the SPDR Gold Trust fell to 918.64 tonnes, a 0.26% drop.

In contrast, the volume for the benchmark spot contract on the Shanghai Gold Exchange climbed from 11,810 kilograms to 17,165kg.

Tensions between demand and supply look set to continue to tighten as total gold held in COMEX Warehouses dropped slightly last week as Registered Gold fell to 935,000 ounces.

Notes predicting this and next year’s gold price appear to be changing tack; following April and June’s price take down many banks saw gold reaching an average price of $1200,now it seems they are feeling more bullish about the price but still expect it to fall over the next couple of years. SocGen are the latest to release a note, they believe gold will reach $1,400 this year before falling to $1,050 in 2014.

SocGen support the view we have expressed recently that the gold price is sensitive to any data which may give some indication as to when tapering may begin. Analysts at the bank believe tapering will begin this year.

The Week Ahead

Last week was a big week for data releases and central banks decisions, this is set to continue this week.

We will get clearer measure of the Chinese economy as mass of data is released this week. Inflation measures, industrial production levels and international trade data are expected. Given the contracting manufacturing PMI levels many expect to see these next results add to the gloomy picture.

Central bank decisions will come from Australia (Tuesday) and Japan (Thursday), whilst no rate cut is expected in Japan, Australia are likely to cut rates. However, Japan’s decision is not set in stone as the slowing Chinese economy, low inflation and poor PMI data may weigh on policy makers to make further changes.

The Eurozone will be hoping that the industrial production data, released for France, Germany and Spain, will be as positive as July’s manufacturing PMIs which showed improvements for the first time since February 2012.

All eyes will then be turned to the UK as the Bank of England release their Inflation Report. Last week, to nobody’s surprise the MPC made no changes to monetary policy, this week observers will be expected some sign of the ‘Forward Guidance’. We are also hoping to see further discussion of the ‘radical measures’ associated with Mark Carney’s arrival.