A recent commentary by Barclays suggested that the gold price remains sensitive to U.S. macro-economic data and will likely react negatively to any positive news regarding either employment or Fed policy. It was not surprising, therefore, that gold pulled back today following the latest Fed policy meeting on Jul. 31 in which the central bank said it would continue to purchase $85 billion/month in assets to bolster the financial market. That was good news for the stock market but not so good for precious metals and PM mining stocks.
Additional factors weighing on gold prices include a stronger dollar (up 1% on Thursday), stronger U.S. factory data, and the European Central Bank’s pledge to maintain low interest rates.
Economist Ed Yardeni believes the Fed won’t “taper” (i.e. reduce) its asset purchases in September as many Fed watchers had previously expected. He bases his opinion on the fact that U.S. GDP growth for Q2 came in at a rather anemic 2.9% y/y, the lowest since 2010. Yardeni suggested this is what will keep the Fed from tapering until next year.
Elsewhere in the news, CFTC managed money combined total positions in gold increased to 70,067 contracts as of July 23 from a recent low of 31,197 contracts a month ago. It’s noteworthy that combined short contracts declined to 52,429 from a high of 80,147 on July 9.
Meanwhile, the central banks of Russia, Ukraine, and Kazakhstan added 4.2 tons of gold to their reserves, according to Sharps Pixley. In China, the first two gold-backed ETFs raised about 1.6 billion Yuan, equivalent to about 6 tons of gold. The recent influx of gold buying hasn’t been able to offset the decline in investment demand this year, however, as Pixley points out.