The Daily Nugget: Gold On Standby For US Headwinds

The gold price has shown itself to be relatively resilient in the first week of 2014, however it is about to face a barrage of headwinds in the coming days and weeks courtesy of the US Federal Reserve.

Later today the minutes from the FOMC’s December meeting will be released. Of course, this was not only Bernanke’s last meeting but also when the committee finally decided to begin tapering.

Market participants will be looking for any indication that the move to cut QE by $10bn per month is part of a greater plan to stop this round of monetary stimulus altogether. General sentiment appears to be that it is, many believe that QE will be non-existent by December 2014. Yesterday San Francisco Fed President John Williams said that the monthly bond purchase program would likely finish by year-end. On the back of this, the US dollar made gains yesterday whilst the gold price fell overnight.

The gold price was also hurt by data released yesterday that showed the US trade deficit fell to a four-year low in November 2013, helped by pre-Christmas exports and a weak oil price.

Later this week it is also the monthly non-farm payrolls data. This statistic is now seen as a major indicator as to the FOMC’s next move, an improving labour market will no doubt add further confirmation to the committee that the economy is coping with the measures it takes.

Physical buying has cooled off slightly in China, judging by price and volume numbers on the Shanghai Gold Exchange. This comes after what was described as a ‘buying frenzy’ in the immediate aftermath of New Year. Compared to a daily average turnover of 18 tons in December, the New Year has seen an average of 24 tons per day (across to contracts) and peaked at 34 tons on Monday.

The high demand is China is to be expected given the Chinese New Year in a few weeks’ time, a period of traditionally high gold buying.