As we just thought gold was acting positive and making a comeback, it proves us wrong by the end of Friday.
Gold erased this year’s gains earlier this month on the outlook for higher borrowing costs as the U.S. economy improves. Bullion has since rebounded as the Fed signalled a worldwide economic slowdown may delay interest-rate increases and as equities to commodities slid.
The week was decent enough for gold in the domestic markets, but then internationally showed a sideways performance.
Internationally, gold prices declined after the U.S data reports were in. The better than expected consumer sentiment data lowered gold’s safe haven appeal while on the other hand the ongoing concerns over global economic growth and a recovery in global stock markets gave the yellow-metal some support.
Equities and bond yields dropped sharply and the uncertainty over the Fed’s hike in interest rates have changed the sentiment for gold from bearish to neutral. Gold showed mixed trends in the week over various economic figures coming in from US
- U.S retail sales and inflation numbers slumped
- Core Retail Sales dipped 0.2%, its first decline since April 2013.
- This indicated to a decline in consumer spending which one of the key indicators of economic growth
- PPI fell by 0.1%, after a reading of 0.0% a month earlier
- US Unemployment Claims dropped to 264 thousand, marking a 14 -year low.
- Manufacturing numbers were a mix, as Industrial Production gained 1.0%, its best showing since November.
- The Philly Fed Manufacturing Index dipped to 20.7 points, but this beat the estimate of 19.9 points.
So it was quite a volatile market for gold and there were several factors responsible for this volatility.
DISAPPOINTING GLOBAL GROWTH AND MIXED US DATA REPORTS-
The global equity drop was induced by the European equities sell-off, which was prompted by the negative August industrial production data from Germany and the market’s disappointment with the lack of further monetary announcements by the ECB to fight deflation and a likely recession in Europe. The September U.S. retail sales of -0.3%, an inflation expectation of 1.5% in 2019, and foreign growth slowdown have fuelled growth recovery concerns in the U.S. The September manufacturing output climbed 0.5% compared to -0.5% in August, which can signal that the U.S. recovery is holding up.
The global equity tumult and the ongoing geopolitical concerns have raised the appetite for gold even though the inflationary pressure has created a negative attitude for gold.
The U.S. SPDR gold trust holdings have risen 0.20% this week after declining for four consecutive weeks.
Moreover demand for gold from India has risen ahead of the biggest festive season of Diwali and many have made their purchases at dips. India’s September gold imports jumped sharply to $3.75 billion ahead of the wedding and festival season, data from the trade ministry showed.
Meanwhile in China, the world’s largest consumer for gold, has witnessed a significant drop in demand for gold even though price are running low but demand here is also expected to pick up. Growth in Gold mine output from China is set to slow significantly in coming years in the face of declining ore grades and waning profitability, an analyst at Business Monitor International said on Friday.
Now we need to see what’s in basket for gold in the coming week. Gold could trade sideways next week and multiple factors are expected to influence the price of the precious metal.
FED- markets will keep an eye in the Fed Chair’s speech this Friday
US- Traders will be tracking news coming in from the equity markets, alongside news about a likely global slowdown, the future pace of US stimulus, US interest rates, the Ebola scare in the US , the U.S leading indicators index , the U.S September new home sales, the U.S September CPI, September US leading indicators index and geopolitical tensions the world over.
CHINA-Next week, we will monitor the September China industrial production data, the Q3 China real GDP growth.