Mixed EU Data And Gold

Following a weak Euro, thanks to weaker-than-expected European data, gold is down again this morning having hit a three-week low ($1,408.24) in the early hours.

European data was a mixed bag yesterday, while the German ZEW Index was 0.1 higher than in April, at 36.4 it was still lower than the expected 39.5 and 48.5 points in March. The Euro fell to a six-week low against the dollar in response. Industrial output in March, for the euro-zone region, saw its biggest jump since July 2011. Analysts believe this is down to cold weather boosting energy use and production. euro-zone GDP is expected to have contracted by 0.2% in Q1.

It seems to be the same old story with gold at the moment; continued ETF outflows, strong U.S. dollar index and mixed economic data are proving bearish for the yellow metal, while physical buying and further rumours of bank easing provide price support.

Having traded sideways over the last couple of weeks both gold and silver continues to wait for a catalyst that will drive them up to the next level. The high-performing stock market seems to be weakening gold’s performance at present.

Barclays yesterday wrote of a ‘tug of war’ between the outflow of ETFs and physical gold. At the end of last week total ETF outflows in the year-to-date was 381 tons. Goldman Sachs’ Jeffrey Currie wrote yesterday that he expects ETF holdings to drive the decline in gold.

India Gold
Gold buying in India during April was so high the trade deficit was up more than 72% since March as gold and silver imports surged 138%. Those looking to buy gold in India are expected to fall after government controls have been placed on gold imports. According to dealers in Hong Kong, however, this is not expected to have a significant impact on price.

Physical demand in Asia remained robust yesterday, despite falling slightly since April. The pattern of gold moving up slightly during Asia trading hours, then falling as Europe and the U.S. come online continues.

As we know from the past, physical buyers do not wait for the price to climb before they start buying, April showed that they buy on the dips. However, the longer this ‘dip’ continues, the more we will see a decline in physical buying as the price becomes the ‘norm’.

Data released yesterday shows that high inflation has pushed Britain’s living standards, in relation to other countries, to a new low. In 2005 we were ranked fifth for disposable income, but today we are 12th. Average disposable income in the last six years has risen by just 6% in the UK, compared to 22% in Germany. We have also moved quickly up the rankings as the one of the most indebted OECD state, from fifteenth in 2005 to seventh.

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