Gold Slows After Three Week Climb

The end of last week saw the gold price complete its third consecutive-weekly gain, climbing 9% in the period. This morning it is down again which was to be expected given the FOMC’s meeting this week and the lacklustre performance of China’s new gold ETFs.

There is no end to the economic releases out this week; three major central bank decisions, US GDP and non-farm payroll data, Eurozone unemployment and inflation figures as well as a series of flash PMIs.

Bernanke and the gold price

As expected, there will be speculation surrounding the FOMC meeting as markets look for any indication as to when they may or may not decide to taper QE. In the last three weeks Bernanke’s comments have helped drive up the gold price; This week however, markets will be looking for further clarity on the committee’s plans.

US economic data due throughout the week will no doubt influence the announcement and statement proceeding the meeting.

US GDP, released on Wednesday, is expected to have slowed from an annualised pace of growth of 1.8% (first quarter of 2013) to 1.4%. This figure will not be as monitored however as non-farm payrolls, due Friday. There are mixed views as to whether or not this will have improved. June’s climb of 195,000 saw the gold price drop once again. Unemployment however remains at 7.6%, a key focal point for Bernanke et al who are focussed on driving it below 7% before considering tapering.

Reading between the lines of comments on Reuters and Bloomberg, it is clear that the majority of analysts expect to just see another ‘re-hashing’ of past comments from the Committee. Whilst there are fears/hopes that their statement may be hawkish, we have to remember that in Bernanke’s most recent comments he was a keen to remind us that they remain ‘accommodative’. Therefore it would not be surprising to see a dovish stance taken.

Ahead of the announcement expect to see further volatility. The summer period will also do little to aid the gold price, as there is a reduced amount of liquidity in the market. Analysts expect to see the yellow metal move ‘aimlessly’ by $20-$30.

More central bank meetings

Here in Europe we await the meetings of the Bank of England and the European Central Bank, both on Thursday.

Mark Carney and his team are expected to maintain current monetary policy given the improvement in GDP in Q2, by 0.6%. Currently we are awaiting August 7th when the Inflation Report will be presented alongside how the bank will be run under Carney’s leadership.

The ECB will be looking out for unemployment, inflation and sentiment indicators. Presently there are signs that the single-currency union is improving. Also look out for Spain’s first GDP estimate.

Asia only wants to buy physical gold

Demand for storage in Singapore made headlines once again this morning after Malca Amit announced that they were adding a silver storage vault to the five gold vaults currently in the Freeport Facility. Bloomberg reports that whilst demand for gold storage comes primarily from institutions, demand for silver bullion storage is mainly an individual affair.

China’s two new gold-backed ETFs fell on their first day of trading, HuaAn Gold ETF fell by almost 1%, while Guotai Gold ETF was down by 0.6%. If there were hopes that the Chinese demand for paper gold would be as great as that for physical then they will now surely be dashed. Since April’s price drop the movement from West to East of physical gold has been heavily talked about, it seems that they are now not interested in our paper gold ideas.