The Daily Nugget: Gold Drops On Improved US Data

With a lack of anything else to focus on, the gold price is set to end Friday with its biggest weekly loss in two months due to uncertainty over tapering and improved US economic data.

The October FOMC minutes, released Wednesday, provided little support to the gold price and were deemed hawkish and yet unclear, by market participants. Tapering may take place ‘at one of its next few meetings’ according to the minutes, so it’s about as clear as mud then.

The number of US workers filing jobless claims last week fell sharply, but really who knows what that means given the news over the falsified labour data. Factory orders also climbed to eight month highs.

Precious metals also suffered yesterday when HSBC’s preliminary manufacturing report for China gave a reading of just 50.4. This was seen as a quite downbeat reading and bearish for both gold and silver.

Holdings of SPDR Gold Trust fell by 3.6 tonnes to 856.71 tonnes yesterday – their lowest since early 2009. Outflows have totalled 450 tonnes in 2013 so far.

Of course the big news yesterday was that the US Senate banking committee approved the nomination of Janet Yellen as the next Chairperson of the US Federal Reserve. Given her commitment to her so far dovish stance, the long-term outlook for gold and silver remains strong.

Central bank gold reserves

The International Monetary Fund has this morning released its central bank gold reserves data for October. Germany, for the second time in five months cut its gold held in reserve by 3.4 metric tons, to 3,387 tons. The country remains the world’s second largest holder of central bank reserves. The news of the sale is expected, each year the Bundesbank sells between six to seven tons to the finance ministry for the minting of commemorative coins.

Turkey’s central bank added 12.994 tonnes, the largest of all central bank purchases last month, unsurprising given the gold buying offensive they’ve been on for a while.

The World Gold Council expects central bank purchases to total 350 tons in 2013 down from 534.6 tons last year.

Swiss gold referendum

Speaking of central bank reserves the Swiss cabinet urged voters to reject a proposed vote that would see a ban placed on the Swiss National Bank (SNB) from selling any gold reserves. The proposed vote has come about from the organisers of ‘Save our Swiss Gold’ who have gathered 100,000 signatures to prompt a national referendum on the matter. The cabinet have apparently been dissuaded from allowing the referendum to take place as it ‘it would hamper the central bank’s ability to manage the economy.’

The SNB have been widely criticised for its sale of 1,550 metric tons of gold between 2000 and 2008.

China gold swaps

In a further move to open up the domestic gold market China will begin interbank swaps trading on the 25th November. A statement released by the National Interbank Funding Center said that trading would take place on the Shanghai-based China Foreign Exchange Trade System, whilst settlement and delivery will be handled by the Shanghai Gold Exchange.

Deflation headed for Eurozone?

The Eurozone has seen disinflation for months, according to ECB President Mario Draghi but deflation is not expected to seep through the Eurozone economy. As we explained last week, disinflation is bad news for gold unlike both deflation and inflation which create economic environments well-suited for gold to thrive. I believe deflation is a bigger issue that Draghi and other central bankers let on and they will take further measures to prevent it.