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.
