Firstly, I would like to express my sincere condolences on the death of our former President Mr. A P J Abdul Kamal. As we all know him better as the missile man of India, his loss means a lot for our country.
Moving on to his week’s bullion market. Well there was lots of hustle bustle in the market as there was no clue over the prevailing volatility in gold.
Gold was probably in the worst macro position it could be in: you have low inflation, high accommodation across the globe, US investment growth and the possibility of further increases in the US dollar.
Currently it seems like gold has been divorced by the market.
Bullion was set to end July with its biggest monthly decline in more than two years after a deep rout last week shook investor confidence further and drove prices to a 5-1/2 year low of $1,077 on July 24. The metal has lost 7.4 percent so far for the month, its steepest decline since June 2013.
Bullion is set for a 7.4 per cent plunge this month, the most since June 2013, after tumbling to the lowest level since 2010 last week. The metal fell as much as 1.1 per cent to $1,084.51 an ounce on Thursday, and was at $1,085.51 at 2:24 p.m. in Singapore, according to Bloomberg generic pricing.
The main culprit for this week’s volatility was the US economic data which in turn influenced the Fed’s decision of an increase in interest rates which in turn fluctuated the dollar prices.
Gold and dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors.
Gold was headed for its largest monthly decline in two years as the Fed moved closer to boosting US interest rates for the first time since 2006.
While there were no clear signals from the Fed as to when exactly would the rate hike come in, they did describe job gains as solid amid an improving economy, according to a statement Wednesday.
Post the statement released by the Federal Reserve- now markets expect the hike to come in soon – probably this September.
Fed policy makers expressed satisfaction with progress toward full employment and used one word — “some” — to describe the additional gains it wants before raising rates.
Increasing rates reduce the allure of gold as the metal doesn’t pay interest or give returns like other assets such as equities and bonds. Investors have cut their holdings in exchange-traded funds backed with bullion by 3.6 per cent this month, the most since December 2013.
Report released by the US department of labor showed the employment cost index rising 0.2 percent, which is the smallest increase in 33 years.
Gold is an asset that pays no interest or coupon and the rate hike is certainly putting pressure on prices.
Gold slipped on Friday and was on course for a sixth straight weekly fall, its longest retreat in 16 years, after upbeat U.S. economic data encouraged bets on the Federal Reserve raising interest rates in September.
Data on Thursday showed the U.S. economy grew 2.3 percent in the second quarter, while first-quarter gross domestic product was revised to show growth of 0.6 percent instead of a contraction.
That reinforced expectations the Federal Reserve is on track to raise interest rates, possibly at its next meeting in September. Higher interest rates would increase the opportunity cost of holding non-yielding bullion.
The data followed the Fed’s policy meeting earlier this week at which policymakers concluded that the world’s largest economy is “expanding moderately”.
But once again, apart from the employment data there were other key economic numbers that came in and influenced gold prices in the opposite direction. Gold prices were trading in positive territory on Friday after mixed US data weighed on the dollar.
Prices fluctuated heavily throughout the week as a combination of a Federal Open Market Committee (FOMC) meeting and US GDP figures drew investors from the sidelines.
ETF- outflows of gold from ETFs are capping any real recovery in the metal’s price. Holdings in funds tracked by Fast Markets have decreased for 14 consecutive sessions and are now at their lowest since February 2009 at 1,537 tonnes.
PMI- Chicago PMI in July was 54.7, exceeding the forecast of 50.7 and the first expansion reading since April of this year.
Consumer Sentiment- University of Michigan consumer sentiment in July was 93.1, below predictions of 94.2
ECI- Thought the weekly unemployment claims were much lower than expectations, a simultaneous wage growth was nowhere to be seen. Employment Cost Index showed a 0.2 percent increase, below the 0.6 forecast and yet another example of persistently low wages.
Eurozone – German retail sales fell short at -2.3 percent as did French consumer spending at 0.4 percent and the Italian unemployment rate at 12.7 percent. Eurozone core consumer inflation however at one percent was better than the forecasted 0.8 percent while the flash estimate at 0.2 percent was as expected.
Traders said sentiment bolstered as the precious metals rose in global markets after a report showed wages and salaries in the US rose in the second quarter at the slowest pace on record, weakening the case for the Federal Reserve to raise interest rates.
The next important data release is U.S. non-farm payroll figures, due on Aug. 7 which will once again play a key role in influencing gold prices.