By midday GMT, gold was trading almost $6 lower than when the market closed on Wall Street last Friday. The precious metal had retained its gains and were holding the balance at $1318.50 an ounce in what proved to be a curious week for traders.
It would appear gold is in for another turbulent week. The Asian market is already shedding its gold funds following last week’s jaw-dropping announcement that $15.2bn of fraudulent gold-backed funds are circulating in the market.
As a result gold has come under pressure in the Far East and could suffer the same fate in the West this week with a spate of economic data due to be released. However, it will be interesting to see how traders react as there is some uncertainty about the official figures.
Uncertainty over US economy
Over the course of the year, US economic data has shown slow signs of improvement. After a shaky start to the year, a pullback attributed to bad weather, a series of financial reports looked increasingly promising and restored optimism in the US market.
Investors returned to dollar-backed equities and the greenback was performing strongly against other currencies. However, the Federal Reserve’s reluctance to raise bank interest rates in early 2015 has cast a doubt as to how strong the economy really is.
Although the Fed appear intent on ending their stimulus strategy, chairwoman Janet Yellen commented that interest rates will stay low for “some considerable time.” Analysts are now questioning how real the economic data actually is.
Although the political tensions in Iraq and Eastern Europe are expected to bolster support for the yellow metal this week, positive US data may change its course. The non-farm payrolls (NFP) data due for release on Thursday is the one to look out for.
Trader sentiment changing?
The NFP is regarded as a yardstick to measure the performance of the US economy and ordinarily one can expect precious metals to lose gains if the data is positive. However, even if NFP for June has performed well, it will be interesting to see how traders actually react given the suspicious outlook of analysts last week. The dollar took its biggest weekly fall in over two months.
However, not all market watchers are in agreement. Robin Bhar of Societe Generale believes strong data this week should “lift the dollar and US yields higher.” He also added that the geopolitical factor makes the market difficult to predict and “could keep gold above the $1300.”
Of course, if US data does not show signs of improvement, other influences will have no effect on the outcome of gold prices and the value will be pushed back up anyway. In times of political or financial trouble investors turn to gold as insurance against riskier assets.
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