It’s been a roller-coaster ride for traders this week as volatile currency and precious metal markets took a topsy-turvy turn. Gold started the week in good form on the back of negative dollar data coming from the US, but dropped Tuesday, Wednesday before pulling back on Thursday. The minutes of the Federal Reserve Committee meeting due to be published later today (Fri 21) will determine how gold will end the week.
The Federal Reserve is expected to continue the pull-back on its quantitative easing (QE) schedule for the third month running. Another $10bn worth of bond buying is likely to be withheld from next month’s stimulus. All eyes will then turn to US job data which has been disappointing since the third quarter of 2013.
In mid-February, gold prices were pushed up to over $1300 an ounce amidst fears of a slowdown in the recovery of the global economy hitting a six-month high of $1332.10 last Tuesday. Just as it appeared traders were regaining faith in the market Janet Yellen, the chairman of the Fed, indicated the central bank is likely to continue tapering QE.
With a recovering economy market sentiment ordinarily turns to equities. Despite the good form of stocks they are hitting all-time highs and have become very expensive. There is little hope of the stalwarts, electricity, oil and corn accruing any return for investors over the long-term. Even technology companies are in minus figures.
Things can change pretty quickly, but for the time being traders are not prepared to stray too far away from gold until currencies show stability. It could be another couple of months before confidence is restored in stocks and shares so gold prices can expect to stay above $1300 for the time being.
However, it seems as though the value of gold will take a tumble at some point this year. Economic data published in the third quarter of 2013 was especially encouraging and the US dollar enjoyed a sharp rise in a short period. Economic data from the US since then has been disappointing, although the seasonal holidays played a huge role in the slowdown.
Demand for physical gold
Treading with caution, dealers are acquiring sufficient quantities of physical gold bullion to hedge against riskier investments whilst jewellers in Asia are buying materials for the year ahead now the buying frenzy for wedding season has died down.
India is still contemplating lifting the levies on imports which has curbed consumer purchasing, but now China is back to business they are snapping up huge quantities of gold and are officially the top importer of precious metals in the world. And the mine their own!
Exchange-Traded Funds (ETF) are also showing encouraging signs following the uncertainty of growth in China’s manufacturing sector, but again seasonal celebrations (Chinese New Year) can be seen as an influencing factor to recent economic data. Now the pistons of the manufacturing powerhouse have returned to full steam we can expect to see the yuan pick up again.
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