Gold saw a movement of US $61 during the week ending 27th July over the hopes of clues from Central banks of US and Europe. Nymex gold grew since the beginning of the week on the hopes over FED and ECB’s further step on reviving their economy. However, Investors faced disappointment as no clear hint was given by Fed chairman Ben Bernanke over further stimulus for U.S. economy resulting in a downfall right after FOMC’s meeting. Though, he did declare that U.S. economy is not performing well but didn’t give anyfurther hints on QE3 expected by investors. Gold is still being supported by hopes on QE3 as world’s largest economy is still under pressure over its gloomy economic data.
Stronger Euro over dollar helped supporting Gold prices during the month Euro saw its biggest one day rally on 3rd august and moved up 1.7% in a day. This move showed Euro an upper trend hence and has weakened the US dollar. A stronger than expected US Job data improved the investors’ appetite for risk and helped investors to move to Euro, as QE3 for US was not looking nearby. However, US dollar is ,expected to be strong further as upcoming US elections would keep the sentiments for US dollars high.
China which was one of the biggest hopes for investors during this ominous market conditions across the globe also showed disappointment through its economic data which showed its trade balance to 25.1B vs 31.7B previously and PPI data at -2.9% vs -2.1% previously.
Although these economic conditions gave a boost to Go : prices increasing its appeal for safe haven and also on them hopes of further stimulus or policy change by Chinese govern ment.I nvestors are eyeing on China now as Premier Jiabao has stated to make some monetary policy changes to boost the economy. Further expected a rate cut in China can bolster the demand for gold in coming months as it will increase the inflation in world’s second largest economy and gold consuming nation.
India the biggest gold consuming nation has shown a downfall in demand for gold this year as weaker rupee has showed gold prices to its all time high. A weaker rupee versus the dollar meant that average local second-quarter bullion prices in India were 29 per cent higher than a year earlier which has weakened the demand for gold.
Adding fuel to the fire was increase in import duty for gold recently which made gold more costly for Indian investors. Gold demand in India has declined 7.1 per cent in the second quarter and import prices has increased to four per cent almost doubled, which has reduced the gold demand too.
India’s gold imports could pick up in the second half of 2012 if record prices ease but annual volumes will still fall about 30 percent. As festival season coming up in India we can see a demand forgold but it would he capped to a limit due to higher prices. Total Indian demand was 181.3 tons in the latest quarter but imports have declined and are further expected to decline by 38 per cent by the year end.
Recently the amount for bailout to Spain and Greece which was agreed by troika will be pumped in during September. The visit from these organizations to Greece in coming month would also determine if Greece needs further assistance or easing as new coalition government have been doing a good job to maintain the country’s deficit.On the other hand Germany has showed a better preliminary GDP of 0.3 per cent vs 0.2 per cent expected. There are signs of improving economy in Euro area conversely uncertainty is still struck as there is no clearer picture about Greece leaving Eurozone to investors.
Silver has become more of industrial metal rather than a precious metal. It has almost always followed a trend of gold and maintained a correlation of 0.90 over last 12 years but since January 2011 the correlation between these two commodities has decreased extremely to 0.20 due to acute fluctuation in gold prices. We are expecting Gold/Silver correlation to be around 0.75 in coming months.
Gold will be range-bound for the next two to three months as uncertainty in US and Eurozone nations and lack in demand from two biggest gold consuming nations can cap the gold price. With a seasonal li kelihood of stronger demand in India and then in China, the second half can be stronger than the first half for the gold market. Any announcement of stimulus by US or China can also push gold higher.
Gold Spot – Weekly
Gold prices breached trend line support in Gold spot weekly chart below $1640. Prices are holding above $1525 and consolidating. In short term prices can give bounce to $1685 around and again selling can be seen there. Prices have crucial support at $1525 and breakdown below this level, prices can test $1380.
Silver Spot – Weekly
Silver prices are consolidating bet $26 to $28.5 from last nine weeks. Prices have crucial support at $26. Breakdown below $26, prices can test $20.8. On higher side prices may test $31.2 on breakout above $28.5.