The Daily Nugget: Gold Losses Extended

The gold price extended losses this morning following a disappointing end to the week on Friday when it finished the week 2.9% down, having reached a six-week high just a few days earlier. Wednesday’s FOMC policy announcement and a stronger Chicago PMI served to give the dollar a boost. Some profit taking was also seen on Wednesday following the release of the FOMC statement.

The silver price did not take as big a hit, it is down just 0.7% this morning having declined for a third consecutive day.

Surrounding the Fed’s decision there was plenty of speculation surrounding the chances of tapering taking place in the coming weeks. In the immediate aftermath many analysts said it wouldn’t go ahead until March 2014, however data following the release led many to believe it could be as early as December.

The overall opinion on tapering appears to have divided market participants, with those speculating in the gold market believing the FOMC will taper sooner than those in the stock market believe.

The week ahead

This week gold market participants will be looking ahead to both the monthly ECB policy meeting and Friday’s US non-farm payroll data release.

Following weaker-than-expected inflation data, the ECB are expected to offer a more dovish-tone and perhaps offer murmurings of lowering the benchmark interest rate, but no decision along such lines is expected. Instead, a change in rates is, if ever, likely to come in December once the ECB have been given time to produce forecasts that justify such a loose monetary stance. This has weighed on the common currency and provided a boost to the US dollar but placed pressure on the gold price.

The main focus of the week will of course be the Fed’s non-farm payrolls data, forecasts state between 125,000 to 130,000 jobs will have been created in October. Should the final figure turn out to be lower there may be a boost to the gold price, but it is unlikely to set it up for new highs.

Will China slow down?

China continues to play a major factor in the gold market, after data showed it imported in excess of 100 tonnes of gold, from Hong Kong, for the fifth consecutive month in September. All eyes will now be on figures for October when the market was closed for the Golden Week holiday.

Some also appear concerned that the fall in premiums on the gold price in China last month also indicates that demand is slowing. This is not necessarily the case, instead the government’s steps to improve supply to the market is likely playing through. More banks and financial firms are able to import gold now therefore easing accessibility for investors to buy gold.

Not only does demand remain strong but output as well. Vice general manger of China Gold Group, Du Haiqing told an industry conference that output Is expected to rise to 430 tonnes this year, from 403 tonnes in 2012. Haiqing does not, however, believe climbing demand is sustainable. He also told conference attendees that he expects gold demand to fall below the 1,000 tonnes seen this year.

China’s economy is widely believed to be on an upswing, following the release of various services and manufacturing surveys released over the weekend. This stands the Communist Party leaders in good stead as they enter into a policy-making summit this week.

It is believed that the previously hard pro-growth stance will be toned down somewhat and that the days of 10% GDP expansion are over, however rhetoric around loose-monetary policy is likely to remain. This is despite excessive credit growth, growing local government debt and a slowdown in export growth.