Commodity Update; Gold – 01 December 2014

Gold prices remain volatile as Swiss vote and economic data weigh; China & Japan econs, November payrolls and unemployment from the US in focus

Gold prices came under fresh pressure last week as stronger than expected US GDP data and uncertainty over the likely outcome of a Swiss vote on gold reserves saw investors begin dumping the metal ahead of the Friday close.

Prices also came under further pressure at the open on Sunday night in the aftermath of a Swiss electoral decision not to increase the nation’s gold reserves to 20% of central bank assets; a move which will have required the purchase of 1,500 tonnes of the metal.

Despite the outcome of the Swiss referendum, gold prices rebounded sharply on Monday morning as the London market awoke to weak manufacturing numbers, which emerged from the Chinese economy overnight, along with a cut to the Japanese sovereign credit rating from Moody’s.

While further weakness in Chinese manufacturing came as little surprise, the ratings cut from Moody’s caught some investors off guard.

The group cited elevated concerns over the country’s ability to cut its fiscal deficit and reduce debt in the wake of Prime Minister Shinzo Abe’s decision last week to delay the second phase of a sales tax increase, which will have gradually contributed to easing the government’s burden of having to reduce the developed world’s largest sovereign debt pile.

The ratings cut also further highlights the challenges facing the Japanese government as it seeks to balance the need for growth friendly stimulus as well as balance sheet positive debt and deficit reduction.


Looking Ahead

With the Swiss referendum consigned to the past and action on the Japanese credit rating having aided a recovery for gold, all eyes are now focused on the release of the ECB rate decision on Thursday as well as the November payrolls and unemployment figures for the US economy on Friday.

Although official projections suggest a minor increase in monthly jobs growth and an unemployment rate that holds steady at 5.8%; it is worthy of note that industry consensus expectations are slightly more bullish than this. Should the actual figures beat expectations by a notable distance then this could add to corrective pressures upon gold.

However, and on the other hand; it is also possible than any surprise move, or talk of stimulus, from the ECB could provide some support for the metal going into the close of the week.

All in all. we see economic and sentiment driven risks as providing scope for gold prices to remain volatile during the weeks ahead.

However, and in line with our earlier sentiments, we believe that evolving monetary policy in certain regions as well as the global focus upon disinflation and deflation, not the once feared runaway inflation, will be likely to see the longer term down-trend in gold resume over the broader term. For this reason, we continue to maintain a negative bias toward the metal.




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