Commodity Update; Gold – 17 October 2014

Gold fails to sustain a break above resistance at $1244; repositions for another charge

While equity markets recorded some of their steepest five day declines for 2014, gold understandably bucked the trend this week when it mounted a challenge against a key retracement level at $1244 before recoiling and repositioning for another charge ahead of the Friday close.

Among the key drivers for the week were sub par inflation readings from the US, China, the UK and Germany; while retail sales figures from the US also underperformed against estimates. The weeks data prompted concerns among investors that the world’s largest economies could be resting on the same patch of shaky ground as the European economies.

These concerns were further highlighted when Greek 10 Yr bond yields surged higher to touch noses with the 8% level after the nation announced its intentions to exit the bailout program which it has been subject to since 2011 when the continental sovereign debt crisis began to take hold.

In another reminder of how trigger happy the market can be in times of stress, the VIX Volatility Index reached its highest level since the height of the financial crisis in 2012 during the week, bringing gains in the index for the last 3 months to 78%.

While much of the move in gold prices was doubtlessly driven by concerns over the global economy, increased physical demand also played a part too. This was as a result of the approaching celebrations of Diwali in India, which prompted an increase in imports to 95 tons for the month of September.

All in all, gold has avoided the plunge below the all important $1180 level and now appears to be in for a period of relative recovery, particularly in light of the previous fortnight’s increased feelings of risk surrounding global growth.

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