Dallas Fed And Economic Data Bring Gold, Silver Down

Gold and Silver futures both had disappointing days yesterday as positive data from both the British and US economies took some sheen off their safe haven status and Gold demand softened.

Whilst the overnight slide to below $1,300 appears negative for spot gold prices, the US Dollar index continues to hover above its five-week low suggesting bullish undertones for precious metal. The slide below the $1,300 mark comes as positive Western data placed pressure on the metal. Following the fall past $1,300 technical selling forced the price lower and demand in China was disappointing.

Given further economic data releases are set to be positive, many analysts expect to the see the spot gold price fall further, possibly to $1285. This is likely to trigger demand in China, which at the moment remains stagnant.

Dallas Fed fuels speculation
Dallas Fed President, Richard Fisher, one of QEs biggest critics, said that the Fed was getting closer to dialling back purchases as the unemployment numbers dropped last month. In a speech in Portland, Oregon yesterday he said, ‘Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets [and can lead to] a serious misallocation of capital.’

Positive economic data
China’s PMI data was better than expected, coming in above 50 (51.3) which suggests economic expansion. Markit’s Eurozone PMI performed as expected, giving the first reading above 50 since January 2012. Elsewhere in Europe, Britain’s businesses were also shown to be performing well.

As we pointed out in yesterday’s Social Gold Mine, India imported hardly any gold bullion for the third consecutive week last week. This is said to be placing pressure on today’s gold price.

Outflows from the SPDR Gold Trust ETF (GLD) also continued to fall. Holdings now stand at 917.14 tonnes.

Premiums on the Shanghai Gold Exchange are currently between $3-$4 above the London spot gold price, a fall of about 1%.

A better year for silver investing?

The silver price has most likely been the serious disappointment of all the precious metals so far this year. According to HSBC, it isn’t going to get much better. The bank believes the metal will trade between $17 – $23 an ounce for the remainder of the year. It has raised its annual forecast for 2013, from $21/oz to $22.90 an ounce.

Silver has benefitted from the gold restrictions in place in India. HSBC believes this will be a key fundamental in this year’s performance. Industrial and coin demand are also expected to remain strong. However, with no supply issues (at present) the bank believes there will be a constraint on further rallies. Mine output is expected to rise from 787 million ounces to 805 million ounces this year.

Silver, unlike gold, is expected to benefit from the positive economic outlook thanks to its industrial use. Manufacturers are likely to increase their demand for silver as business picks up.

One area that it is not likely to benefit however is silver ETFs; HSBC believe we are likely to see the ‘lowest annual increase on record’, from 20 million oz to 50 million oz.