The price of gold is likely to confirm its second weekly decline Friday after a week of better-than-expected data from both China and the U.S. At the time of writing, gold is trading at $1,733 and silver at $32.32.
In the early hours, Friday, both made early gains, which were quickly retraced. As we wrote yesterday, short-term support for gold is expected to be found at $1,730.
According to Bloomberg data gold-backed exchange traded products gained 1.5 metric tonnes yesterday to 2,580.6, just under three tonnes short of last week’s record.
In the midst of wedding and festival season there have been disappointing sales out of India, with gold imports down by 40%. However, this quarter has finally seen a pick up as gold imports are reported to have increased for the first time in six quarters. The new interest in gold is thanks to the fall in price, with previous highs putting people off buying. Expect to see continued growth in sales over the next couple of weeks.
Buy Gold For The Long Term
Whilst the gold price is taking a back seat for October, it isn’t all bad news, with the long-term fundamentals remaining bullish.
HSBC economists James Steel and Howard Wen remain bullish on gold's price, expecting it to reach $1,900 by the end of the year, reports the FT. Their average gold price forecasts for this year and the next two have been lowered to $1,700 from $1,760 for 2012 and $1,850 and $1,775 for 2013 and 2014 respectively.
Like much of the other commentary surrounding the near-future of the gold price, the HSBC economists expect that whilst the QE3 gold-buying rush has calmed down, the effects of QE3 will help provide support for the gold price going forward. They also expect support to come from the combination of a lack of economic growth in the US and inflation.
Gold Investment And Inflation
Speaking of the QE3 induced gold buying spree, according to the World Gold Council’s quarterly report this gave gold investors an 11.1% return.
The World Gold Council refer to central banks’ unconventional monetary policies which have caused several financial assets have positively responded to, but gold has outshone them all. The WGC writes:
There is a consensus that these policies drive investment into gold purely due to inflation-risk impact. We believe that there is not one but four principal factors that provide further support to the investment case for gold:
- Inflation risk
- Medium-term tail-risk from imbalances
- Currency debasement and uncertainty
- Low real rates and emerging market real rate differentials
Yesterday markets appeared to remain cautious awaiting the outcome of the EU summit and to see how China would react following the better than expected Q3 GDP data.
An early morning release from the EU summit today reports that EU leaders have committed to establishing a bank supervisor for the euro-area by January 1st. The supervisor will exist to break the link between governments and banks. This step towards some kind of ‘resolution’ of the single currency crisis has so far done little to impact the euro.
The crisis has fully hit Germany’s economy; after reducing their forecast for growth next year, the country’s automakers are also reporting problems; VW is expected to announce its biggest quarterly earnings drop since 2009.
Yesterday we saw yet another occurrence of ridiculous economic statistics, conveniently just a few weeks before the US election. The Philly Fed manufacturing index, a general indicator of business indicators in Philadelphia, was at -1.9 at the last reading. A below zero reading indicates worsening conditions. This latest reading was forecast to be at 1.0%, however in came in at a whopping 5.7, which as Zerohedge points out, doesn’t quite match up with the internals.
The Week Ahead
Next week looks to be a quiet one for data releases and announcements, possibly leaving the gold and silver prices hanging for a while.
It’s important to remember, however, that just because there is little action doesn’t mean there aren’t cogs in the background working away to create a reaction; QE is still going on, the euro-crisis has not been resolved and economic uncertainty remains. Announcement, policies etc are not the only things driving the gold price, it is the result of these things which will really make gold worth your while.
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