Gold’s five-week winning streak was stopped in its tracks on Friday following strong non-farm payroll data and concerns over an economic slowdown in China.
China’s exports slowed down last month leading to concerns that the trade balance will soon be in deficit. Higher ten-year US treasury yields are also putting pressure on the gold price. However, geopolitical concerns surrounding Ukraine and the resulting tensions between the West and Russia will provide support to the price of gold, which is unlikely to go below $1, 320/oz.
On Friday holdings in the SPDR Gold Trust climbed 1.5 tonnes to 805.2 tonnes. Last year ETF outflows were partially responsible for the 28% fall in the gold price.
China, carrying the weight of gold on its shoulders
This week is a quiet one in terms of Western economic data releases, however several from China are due. These are likely to impact the gold price as speculators assess the country’s economic strength and determine what it will mean for future gold purchases.
China, gold’s biggest cheerleader, has seen demand slow on all fronts in the last week as positions were liquidated on the Shanghai Futures Exchange and there is apparently no fresh physical buying interest.
So far this year gold demand in China has fallen 17%, according to the China Gold Association, thanks to climbing prices. Zhang Yongtao, vice chairman of the CGA, told Bloomberg that demand for this quarter may be 250 tonnes, compared to a previous 300 tonnes.
Ukraine’s gold…headed for Germany via US?
There are reports circulating the internet of the movement of Ukraine’s gold reserves. A news agency in Ukraine report that 40 sealed boxes were loaded onto a plane bound for the United States. If this is true then one does wonder if the US has found a temporary solution to the Germany repatriation issue. According to the WGC the country has 42.3 tonnes of gold.
Gold controls are ‘reasonable’
Any hopes of the Indian government relaxing the controls on gold appear to be disappearing. In an interview with Business Standard former Reserve Bank of India governor and chairman of the Prime Minister’s Economic Advisory Council C Rangarajan said he believed the existing rules and duties on importing gold were “reasonable," according to moneycontrol.com.
Gold price forecasts head lower
Despite hedge funds and other speculators increasing their bets on higher gold prices, for the fourth consecutive week last week and are now their most bullish since December 2012. Despite this, and the fact that gold has climbed since the start of the year, Jeffrey Currie at Goldman Sachs is sticking to his original forecast that gold will slump to around $1000/oz this year.
Speaking of low price forecasts, Morgan Stanley has lowered its 2014 gold price forecast to by 11.6% to $1,160/oz. The bank cites the reduction in Fed stimulus and the regulatory pressure on banks to reduce their commodity operations, as reasons for the significantly lower forecast.
Watch out for those PGMs
While silver and platinum were both tracking gold lower, palladium continues to hover around its highest point this year. The industrial precious metal is currently benefitting from worries over supply constraints thanks to tensions in Russia and the ongoing mine disputes in South Africa.