Recently gold has been struggling to climb up due to the recurrent changes in the expectations of an interest rate hike. There is quite a possibility that market players are paying too much heed to the whole interest rate scenario and in turn missing on the bigger picture.
Nonetheless, Gold continues to work lower alongside the rest of precious metals – a resilient dollar and rising US real rates have prompted traders to unwind their long positioning. Investors have become increasingly edgy ahead of the conclusion of the Fed and the BoJ meetings
The spot gold price inched lower during Asian trading hours on Friday amid Mid-Autumn festival holidays in the region.
Spot gold was last at $1,314.66-1,315.00 per ounce, down $1.17 from Thursday’s close.
The spot gold price had tumbled to a week’s low of $1,307.75 on Thursday on selling pressures following a brief spike to $1,328.10 sparked by weak US retail sales data.
In data released Thursday-
- US retail sales in August undershot at -0.3 percent
- Core retail sales in August undershot at -0.1 percent.
- Industrial production month-over-month in August also disappointed at -0.4 percent
- The US PPI in August was unchanged; a 0.1-percent gain from the previous month has been expected.
- The core PPI – excluding food and energy costs – was in line at 0.1 percent.
- The Empire State manufacturing stood at -2.0 missed the expected -0.9
- The Philly Fed manufacturing index at 12.8 beat the predicted 1.1.
- Capacity utilization rate in August stood at 75.5 percent, a touch below the 75.8 percent
- Weekly unemployment claims for September 1-8 in at 260,000 were just below the forecast 262,000 and, more importantly, the psychological 300,000 mark.
- Lastly, the current account balance in June was in line with consensus at -$120 billion. Business inventories month-over-month was unchanged in July, missing the 0.1 percent forecast.
There was disappointment in the markets when the data was released that showed signs of a softening US economy,.aThe US economy has recently shown signs of softening – data including retail sales, its PPI and industrial production have undershot.
While disappointing numbers have lowered the likelihood of an imminent Fed rate increase – for September was just 12 percent, November was 19.3 percent and December was 46.2 percent. Earlier this week, majority had expected a rate hike in December.
With such soft data coming in from the US, expectations have largely diminished towards the Fed doing anything in September and the market is drifting back towards the view they might do nothing for quite a while.
Some even feel that markets are overeating to a potential rate hike and giving too much attention to it, thus ignoring other crucial factors that have the potential to influence gold prices.
The market is once again divided between the supported of bulls and bears for gold. The ones that are bullish are not worried about gold’s recent downtrend.What is the most important factor for investors is that the gains seen so far are sustainable and that gold has more or less stabilised before it takes that long jump to rally.
They believe Fresh disappointing US data has reinforced our view that the Fed should remain on hold in September, resulting in renewed weakness in the dollar and US real rates and prompting fresh buying in gold.
Moreover, demand for gold from China and India is expected to rise over the months to come which will further boost gold prices higher. The market is moving towards to a festive season and this period of the year has generally seen demand for gold rising and this rise in demand will make up for the weakness gold has faced over 2016.
Given that gold is heavily influenced by fluctuations in the dollar and US real rates, we are not surprised by the metal continuing to weaken. But the bullish supporters for gold also believe that this weakness is temporary and is currently driven by a stronger dollar and higher US real rates
Our big-picture outlook remains bullish but more profit-taking could easily be triggered if the price action disappoints, as it may be starting to do.