The Daily Nugget: Gold To Break Negative Correlation With Dollar?

The spot gold price surged to a near three-week high yesterday as strong demand to buy gold hit the market. Analysts are now looking for December gold futures to push through $1,350, the next level of resistance.

This morning spot gold snapped its winning streak, falling to as low as $1,330. It appears to be recovering now thanks to a weak dollar and improved sentiment over ETFs. Having touched $1,347 yesterday, gold prices for December delivery remained unchanged at $1,335.70.

Having been pretty tedious for over a month, trading sideways, silver also followed gold’s lead yesterday. September futures hit an eight-week high, reaching $21.32 having not touched above $21 since June this year. This morning it fell for the first time in five days but has recovered and is building on yesterday’s gains.

The China Gold Association confirmed yesterday that China would overtake India when it comes to gold consumption this year. In the first half of 2013, gold bar purchases saw a larger increase in demand than jewellery but the latter remains the more popular. Gold bar demand surged by 87% to 278.81 tonnes, whilst jewellery climbed by 44% to 383.86 tonnes.

The report from the China Gold Association helped to boost prices yesterday and helped support the spot gold price as pre-set buy stops were triggered. Whilst prices have fallen 21% so far this year on the SGE, the CGA figures reminds markets that there is still strong demand for physical gold. Volumes on the SGE fell yesterday to 9,182 kilograms yesterday from 10,336 on Friday. A quick scan of reporting from financial sites suggests more weight is being placed on physical gold demand in Asia, than was seen previously.

Cash for gold doesn’t pay

Low gold prices are hitting pawn shops, hard. Pawn broker, H&T Group blame gold’s fall for the company’s lowest share price since its 2006 initial public offering.

Gold price to break ties with dollar?

Interestingly yesterday, the September US dollar index was up 0.255 point to 81.425, yet gold prices continued to climb as investors continue to buy gold. Many analysts are now asking if the yellow metal is breaking its negative correlation with the reserve currency.

This possibility will displease Deutsche Bank who reiterated that they are bullish on the US dollar which will ’cause headwinds’ for gold. They do believe, however, that PMI data outside of the US could provide some short term support for the gold price, until the next payroll data. “We expect gold will remain vulnerable in an environment where U.S. real yields are moving higher, the U.S. dollar is strengthening and the S&P 500 is hitting new highs,” Deutsche Bank says.