Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18
SP500 Stock Market Sell Off Well Forecast by President Trump - 11th Oct 18
USD and US Tr. Yields Retreat, GBP Gains on Brexit-deal Report - 11th Oct 18
Loss Of Yield Curve "Shock Absorber" Could Mean A Rough Ride Ahead For Markets & Housing - 11th Oct 18
Just How Bearish is the Stock Market’s Breadth? - 11th Oct 18
Here’s Why Gold Stocks, Gold, and Silver Are Great Buys Now - 10th Oct 18
Russian Ruble Technical Chart Analysis and Forecast - 10th Oct 18
Society Trends To Keep in Mind in the USA - 10th Oct 18
[eBook] How to Identify Turning Points in the Market - 10th Oct 18
Euro Vulnerable as Slowing Growth Reveals Underlying Issues - 9th Oct 18
Construction Companies to Watch For in 2019 - 9th Oct 18
ECB Meeting Minutes and US Inflation Data in Focus - 9th Oct 18
Interest Rate Shock-Time to Find Out Who has been Swimming Naked - 9th Oct 18
Unintended Consequences of Expanding Sheffield's Best Ranking State Secondary Schools - 9th Oct 18
Crude Oil Price Trend Forecast 2018 Update - 9th Oct 18
Inflation Is Starting To Heat Up - 8th Oct 18
Stock Market Seasonal Influence at Work - 8th Oct 18
Barrick Randgold Deal Breathes New Life into Gold - 8th Oct 18
Stock Market Sell Off, Dollar Rally Expected, Now What? - 8th Oct 18
The Chartology of Gold and Silver - 8th Oct 18
The Income for Life Playbook - 8th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Macro Factors Dominating Gold Price As US Dollar Outweighs Physical Demand And Investor Flows

Commodities / Gold and Silver 2014 Sep 09, 2014 - 12:27 PM GMT

By: GoldCore

Commodities

With gold trading in a narrow range below $1,300 and remaining relatively weak, it is worth pausing at this juncture to look at the combination of factors that are affecting its price formation.

A current snapshot of the world gold market and its near term outlook can be gauged by examining four sets of influences on the market, namely the macro/geopolitical environment, investment demand flows, physical demand in the major markets (using India as an example), and finally the technical picture.


Macro Economic/Geo-Political

Overall sentiment in the gold market continues to be set by the global geopolitical and macro environment.

The relative strength of the US economy compared to other economies is currently creating relative dollar strength, even despite the fact that the monthly US non-farm payrolls for August came in at 142,000 new jobs last Friday, this was substantially lower than the consensus predictions of 200,000.

This is because other major currencies are making the US Dollar look good. The British pound is weakening due to the heightened uncertainty over the outcome of next week’s Scottish independence referendum, while last week’s European Central Bank (ECB) cut in interest rates and expectations of sovereign bond buying by the ECB later this year are weighing on the Euro. Therefore, with pressure on the Pound and the Euro, the US Dollar is displaying relative strength. As gold price discovery on world markets is in US dollars, and most pricing and trading is in US dollars, as the dollar strengthens, gold purchases become more expensive for non-US dollar denominated investors. This is just a fact of the market.

Globally, while there are not as of yet very strong expectations of interest rate rises in the major economics, interest rate expectations are strongest for the US economy. This was illustrated yesterday when the San Francisco Federal Reserve cited a study which indicated that investor interest rate expectations are currently lower than those of the Federal Reserve. The San Francisco Fed seems to be signalling that investors should expect an interest rate hike sooner than expected.

With the recent ceasefire in the Ukrainian-Russian conflict, the relative demand for gold as a safe haven asset has dwindled in the last week. Today a report by Dutch investigators  into the downing of Malaysian Airlines flight MH 17 only stated that the flight was likely downed by an outside impact. Since the report’s conclusions appear to be deliberately ambiguous, this does not appear to change anything as far as the ceasefire or the negotiating position of any peace negotiations.  

Investor Demand

The flows of investment into and out of physically backed gold Exchange Traded Products (ETPs) are also helpful in gauging sentiment in the world gold market.

In August there was a net 17 tonne outflow from physically backed gold ETPs, with an outflow of 6.5 in the last week of August. ETPs include the GLD (SPDR Gold Shares) and the IAU (iShares Gold Trust) products. The total accumulation of gold in these products then stood at 1,726 tonnes at the beginning of September and was down 36 tonnes compared to the beginning of the year.

While this year-to-date drop is not much compared to the 800 tonne outflow in 2013, it is still a sign that investors who use the ETF/ETP route, are not, on a net basis, allocating new money to gold. In first week of September there were 13 tonnes of outflows from physical gold ETPs. In GLD, the total holding is now at 785 tonnes, and total ETP holdings (in all tracked products) are now down to 1,713 tonnes (as of September 4), nearly 3% lower than the start of the year. Thus, ETP flows are slightly bearish at the moment but overall quite neutral.

Investor sentiment in the gold futures market as well as coin demand for the bullion coins of the major Mints are also used as additional gauges for investor demand flows, but at the moment, these gauges, along with the ETPs are just neutral to slightly bearish.

Physical Demand in India

Physical demand in the large consumer gold market of India has been weaker than expected because the newly elected government has not yet reduced gold import restrictions despite the trade balance having improved.

Last year, the fall in world gold prices saw a surge in gold imports into India which had a large negative impact on the trade balance and weakened the Indian Rupee. Import duties on gold rose to 10% and import restrictions were imposed specifying that of all the gold officially imported, 20% had to be re-exported. Other import restrictions were also introduced for banks and trade houses that usually import gold.

These restrictions on gold demand worked as expected however they led to a sharp increase in gold smuggling into India. Although official figures on gold smuggling are just estimates, the World Gold Council speculates that for all of 2014, Indian gold imports via smuggling could reach 200 tonnes. This is about the same amount as was imported into India officially during Q2 of this year.

It remains to be seen how the new Indian government views the current import restrictions on gold. They may wait in the near term before tweaking with economic policy that has helped to improve the trade balance.

The Indian festival and wedding season is fast approaching however, which is always seen as a positive factor in the annual cycle of Indian gold demand. The major festival of Diwali is on October 23, while the end of year wedding season peaks in November and December.

The wedding season is important since in traditional Indian society, gold is given as wedding gifts as well as being a source of demand for wedding jewellery.

Another factor impacting gold demand in India is the monsoon season since this affects crop production and dictates how much disposable income is available to rural Indian society to save in the form of gold. If a monsoon season is weak then sometimes saved gold is even used to raise cash to balance household incomes.

Technical Factors

Support that had existed at $1,270 has now been breached. The next major support level is at $1,240, but before that the psychological support level of $1,250. There is major support near $1,180.

Resistance is now at $1,277 and $1,297. If gold did manage to go above $1,297 it could trade up to $1,325 or even higher to $1,345.  A resumption of an uptrend in the price would be clear if gold broke above $1,520.

Interesting, Jim Sinclair, the well-respected gold expert and technical analyst said yesterday that gold cycles which turned gold back from the $1,900 level in 2011, have now turned up and are indicating that the gold price which is now in a major support area, will now aim to reach a $2,100 target area.  

Market Update

Today’s AM fix was USD 1,256.00, EUR 974.78 and GBP 779.79 per ounce. Yesterday’s AM fix was USD 1,267.25, EUR 978.87 and GBP 786.57 per ounce.

Gold fell $13.20 or 1.04% to $1,255.60 per ounce and silver dropped $0.17 or 0.89% to $19.03 per ounce yesterday. 

Gold is currently trading near a three month low at $1,255, but unchanged from close of trading in New York yesterday. Specifically, the three month low was in June 2014 at $1,240. Yesterday in New York trading, gold fell more than $10 from $1,265 but recovered to close in New York at $1,255. In Singapore overnight trading, gold finished trading near $1,255.

The US Dollar Index is currently trading near its 14 month high which was reached in July 2013.

Silver is trading at $19.19, unchanged from yesterday. Platinum is down 1.05% at $1,395 while palladium is down 1.45% at $887.

This update can be found on the GoldCore blog here.

Yours sincerely,
Mark O'Byrne
Exective Director

IRL
63
FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
UK +44 (0)203 086 9200
US +1 (302)635 1160

W www.goldcore.com

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

GoldCore is committed to complying with the requirements of the Data Protection Act. This means that in the provision of our services, appropriate personal information is processed and kept securely. It also means that we will never sell your details to a third party. The information you provide will remain confidential and may be used for the provision of related services. Such information may be disclosed in confidence to agents or service providers, regulatory bodies and group companies. You have the right to ask for a copy of certain information held by us in our records in return for payment of a small fee. You also have the right to require us to correct any inaccuracies in your information. The details you are being asked to supply may be used to provide you with information about other products and services either from GoldCore or other group companies or to provide services which any member of the group has arranged for you with a third party. If you do not wish to receive such contact, please write to the Marketing Manager GoldCore, 63 Fitzwilliam Square, Dublin 2 marking the envelope 'data protection'

GoldCore Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules