Firstly,I would apologise to all my readers for not drafting a blog for last week.
I would like to present you an in depth analysis of this weeks gold movement.
It all began on a positive note for gold. The yellow metal entered the positive territory on the first day of the week and investors once again gained confidence of gold being a safe haven asset. But as we moved further, it once again lost its glitter. Gold prices fell by the end of the week and there were a varied reasons responsible for this fall.
Gold was marginally higher on the first morning of the week but remained rooted within a narrow range. Gold was vulnerable to a fresh wave of selling from funds poised to increase bearish bets.
In Shanghai, poor PMI dampened the sentiment and this decline in Asian markets boosted gold’s safe haven appeal as gold continued its gradual positive trend in European trading and was up around $6 an ounce to $1,141- around two per cent off a recent high reached a little over a week ago.
Gold has been struggling to gain from equities volatility in recent weeks, but it reverted to its inverse correlation with wider markets on Wednesday as spot prices recorded the sharpest fall in a week.
Gold found “no help” on Thursday as a spate of economic data from Europe and the US reduced inflation expectations. This sent the dollar higher, weighing down on the value of a precious metal that is often treated as a proxy currency and typically moves in the opposite direction to the greenback.
Gold fell 1 percent on Thursday as the dollar jumped versus the euro after the European Central Bank (ECB) cut inflation forecasts, while a U.S. jobs report that could provide clues on the timing of a Federal Reserve rate rise remained in focus.
The ECB left interest rates unchanged at record lows as expected, but lowered its forecasts for inflation and economic growth, citing a slowdown in emerging markets and weaker oil prices.
As a traditional hedge against inflation, gold suffered from the downward revision.
Spot gold had hit its lowest in a week during trading sessions on Thursday after comments from the ECB president Mario Draghi boosted the dollar against the Euro.
The president warned of negative inflation in the months to come, while noting that the Euro zone recovery has been weaker than expected.
The central bank left its benchmark interest rate at 0.05 per cent, a move that was widely expected whit Euro zone inflation currently at 0.1 percent.
By Friday afternoon, gold slipped about 0.4 percent in Europe following the release of a mixed US labor report.
The spot gold price was last at $1,120- $1,120.5 per ounce- almost down $4.70 from Thursday’s close. The US nonfarm payroll employment increased by 173,000 in August- below the forecast of 215,000 but on the contrary the unemployment rate fell to 5.1 per cent from 5.2 per cent in the prior month.
While average hourly earnings rose eight cents to $25.09 following a six cent gain in July- the hourly earnings rose 2.2 percent over the year.
Gold that was trading in a narrow range but on a positive side- immediately moved to the negative territory after the release of the report.
Though the reports were conflicting in nature- overall it did support the fact the interest rate hike may happen in September itself.
Reasons to justify this was a strengthening dollar and a strengthening gold, both of which happened after the data release. Their usual inverse relationship trend as broken which reflected some speculation surrounding a September interest rate hike.
The jobs report has taken on greater importance ahead of the September FOMC meet. The Fed is deciding whether to raise the Federal Interest rate for the first time since 2006.
After from the Euro zone and the US, In India a less than optimal monsoon will surely affect the demand for gold which may pull down gold prices further.
On the other hand demand for gold from China too seems to be weak. Chinese markets will be closed until Monday after the September 3-5 celebrations to mark the allied victory over Japan in the World War 2. The two day holiday in China also had some bearing on gold.
Currently we don’t see any help for gold from any of the world economies.