Commodity Update; Gold – 04 November 2014

Gold falls victim to better economic data and the “final taper”

While equity markets rose across the globe last week, gold fell victim to a flurry of better economic data and the Federal Reserve’s decision to carry out its “final taper”. This saw the metal coming under substantial pressure from mid week, driving it back below the all important $1180 level and placing it in danger of a further leg downwards to new multi-year lows.

It comes as no surprise to us that, with the FOMC’s acknowledgement that spare capacity within the US labour market is “diminishing”, the BOJ’s leap into action last week did little to alleviate the pressure upon the precious metal.

This is as US policy makers have now cleared the way for the economy to transition toward a higher rate environment, which supports our belief that the long term downward trend in the metal has resumed and, in coming weeks, we should expect new multi-year lows for the metal.

Looking to the immediate future, the week ahead could see gold draw some support for a corrective move if ISM non-manufacturing, payrolls and unemployment numbers due from the US fail to meet expectations. Given several months of strong gains in each of the measures, it is possible that one of them will have ran out of steam during October.

Such an outcome could provide the impetus for a brief bounce back toward higher levels however, without a resurgence of geopolitical or economic risk; we doubt that this would be able to sustain itself for long.

Spot Gold // Hourly Intervals

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