Gold, China Data And Bernanke’s Words

Gold had a strong week last week, up by over 5%, its biggest weekly advance in nearly 2 years. This was despite the gold price falling back slightly on Friday. Silver gained 5.8%, its biggest weekly increase since September last year.

Both the gold price and price of silver have rallied this morning on the back of China data. Gold has recovered most of the losses made on June 19th when Bernanke said the Fed may slowdown bond buying by the end of the year.

Many analysts expect to see a slight pullback in gold, after such a stellar performance last week. Hedge funds raised bets on a higher gold price last week thanks to Bernanke’s comments in the FOMC minutes. Whilst data from China (see below) is a key factor in the gold price performance, the economy is not expected to grow at the phenomenal rate seen in previous years, therefore Bernanke’s words are likely to carry more weight.

Supply tightness and rising premiums on the Shanghai Futures Exchange provided strong support to the gold price, and will continue to do so this week. Tightness in the physical market was further underlined as total US COMEX gold stocks fell to a twelve-year low.

The week ahead

This week, two key data releases/speeches will be watched closely.

One was the China data release that happened over the weekend, GDP data has met expectations of 7.5% which has provided some support to the gold and silver price.

The second is Bernanke’s testimonial to Congress. Last month many believed he had hinted that tapering would begin in September, after last week’s minutes people remain unconvinced that this will be the case. Many believe QE will run well into next year.

Those paying attention to his comments will recall him stating that the US needs ‘highly accommodative monetary policy for the foreseeable future,’ must remember that he will voice the views of the FOMC and not his own, as we saw in the minutes.

Over the weekend troubled Eurozone countries, France and Germany, received good news as both of their governments said growth was back. President Hollande responded to the downgrading of his government’s debt debt by arguing that the country is on the right track and will see signs of improvement in the second half of 2013. In Spain, economy minister Luis de Guindos stated ‘the recession is over…the recovery is a small flower in a greenhouse that has to be tended to.’

The honeymoon period for Mark Carney is likely to over as he is expected to face a major inflated hurdle this week when the CPI data is released. It is expected to show that consumer price inflation has reached a 14-month high. Further insight into his thoughts behind the management of the economy will be shown when the minutes of the latest MPC meeting are released.

Also in the UK, May’s average earnings and unemployment data will be released as will June’s claimant count.

In the US where talk of recovery is now a given, we will see the first major week of second quarter earnings. Whilst for every company that has a positive release, there is estimated to be 6.5 who have lowered their forecasts. This is the worst positive to negative ratio seen since the beginning of 2001.