Gold Futures Prices see-saw on QE Expectations
Gold Futures Prices closed last week on a strong note & have been on a modest rise for the last 5 to 7 trading sessions amid see-saw movements on the sentiment that central banks around the world will initiate some monetary easing to stimulate their economies & battle the increasing slowdowns. Gold Futures Prices started rising steadily when corn prices soared & also after the U.S. Department of Agriculture cuts its estimate of the Corn crop due to a drought. The thin trading volume situation in the bullion market may continue the trend till August end with many traders away on holidays & vacations. Trading volumes may rise only on solid evidence of a pick-up in demand, which eventually will come only in the form of some sort of large monetary easing. Momentum players in Gold yet tend to remain on the sidelines awaiting a clear breakthrough in the price range either ways.
On the New York Mercantile Exchange (NYMEX), Comex Gold Futures Prices for October delivery were up trading at US$1,626 an ounce but closed around $1610.6 after declining to $1607.9 with no major US Economic news acting as movement triggers for the day. In the Indian Markets, MCX Gold Futures Prices for October delivery were up trading at Rs. 30,198 but closed around Rs. 30,054 after declining to Rs. 30,038. MCX Silver Futures Prices for September delivery were up trading at Rs. 53,708 but closed around Rs. 53,348 after declining to Rs. 53,312. Overall, Gold Futures Prices remain in the same consolidation range as seen in the past several months. The trading range of Gold Futures Prices seems to be shrinking month on month from May onwards this year with the largest range seen in May of around $1535 to $1640 & the range has been shrinking ever since, though towards the higher end.
Given the macroeconomic backdrop, Gold Futures Prices have been able to edge higher lately even with the Euro weakening against the US$. Gold ETF – Exchange Traded Funds, flows have kicked off August on a positive note with inflows of 13.2 tons. Physical demand has been light in the early stages of the seasonally strong period, with Indian demand held back to a weak INR – Indian Rupee and concerns over a weak monsoon season. Movements in Gold Futures Prices & other commodities in the coming weeks will be more strongly influenced by market perceptions of the level of U.S., ECB and Chinese government intervention to re-stimulate industrial growth. Anticipation of further monetary easing by the Fed is presently supporting Gold Futures Prices in a context of decelerating economic growth. A ‘wait-and-see’ attitude seems to be largely prevailing at the moment, and could remain until the end of August, which coincides with the Fed Chairman Ben Bernanke’s Jackson Hole speech on 31 August. The nature of a potential further round of quantitative easing is being debated. In particular, the idea of an open-ended QE appears to be making its way, whereby balance sheet expansion is maintained until economic progress has been achieved.
Weaker Economic Data may influence movements in Gold Futures Prices:
Japan reported yesterday its Q2 GDP – Gross Domestic Product grew less than expected, expanding 0.3% according to preliminary figures, below market forecasts for 0.6% and well below the first quarter’s rate of 1.2%. Japan’s preliminary second-quarter growth figures were the latest in a series of disappointing indicators pointing to inbound intervention from central banks across the world.
China reported last week that its trade surplus narrowed unexpectedly in July, dropping to US$ 25.1 billion from a US$ 31.7 billion surplus. Economists were expecting a US$ 35.1 billion surplus. There may have been some market disappointment that Chinese authorities did not undertake any further monetary accommodation over the weekend, such as lowering the reserve ratio requirement.
Meanwhile in Europe, the European Central Bank on Thursday trimmed its forecast for economic growth to 0.6% in 2013, down from 1% previously. The ECB also forecast a 0.3% contraction in growth this year, slightly worse than its previous forecast for a 0.2% contraction. These news cemented views that central banks around the world will take steps to stimulate their respective economies with monetary policy tools, which tend to weaken paper currencies and send stocks rising. Federal Reserve officials have said they cannot rule out rolling out a third round of asset purchases from banks, a stimulus tool known as quantitative easing that pumps liquidity into the economy to spur recovery, weakening the US$ in the process.
Movement Triggers for Gold Futures Prices – Economic Data for the Week:
The Eurozone will release preliminary second-quarter GDP – Gross Domestic Product data today, on Tuesday followed by industrial production figures, while the U.S. will release data on retail sales & the Producer Price Index today and inflation data on Wednesday. The markets get the Consumer Price Index, Empire State manufacturing survey and industrial production on Wednesday. Thursday reports include weekly jobless claims, housing starts and the Philadelphia Fed index, while Friday brings Leading Economic Indicators and the Thomson Reuters/University of Michigan consumer-sentiment index. Indian Equity & Commodity Markets remain closed on Wednesday 15 August as India celebrates its Independence Day.
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