Gold Prices Fell Below $1,300 Before Next Week's U.S. FOMC

The U.S. Comex gold futures have dropped three days in a row by 1.76% to end at $1,290.80 on Thursday and have declined 1.42% for the week. During Friday morning in Asia, the gold futures rebounded two dollars. The Dollar Index has risen 0.37% this week and ended at 80.823 on Thursday. Week-to-date, the S&P 500 Index and the Euro Stoxx 50 Index have risen 0.50% and 1.77% respectively. Since April, the S&P 500 Index has not declined by more than 1.50% from peak to trough and has reached an all-time high of 1,987.98 on Thursday. The U.S. ten-year government bond yield rose 2bp this week to 2.503%.

Global Growth Scorecard

The latest weekly U.S. jobless claims unexpectedly dropped to the lowest level since February 2006 while the four-week average fell to the lowest level since May 2007 to 302,000. The June flash manufacturing PMI Index in China rose to the highest level since January 2013 to 52 compared to 51 expected. The July Euro-zone composite PMI Index rose to 54 compared to 52.8 expected on the back of better economic growth from China and the latest ECB measures of targeted long-term loans and negative deposit rates. The IMF however has revised down some key countries’ growth outlook in 2014 and said that the U.S. would grow at 1.7% instead of 2.8% as estimated in April, China would grow at 7.5% instead of 7.4%, and Russia would grow at just 0.2% instead of 1.3%. The prognosis is a prolonged monetary policy stimulus, which can underpin the support for gold despite the short-term setback in prices due to the reduction in safe-haven bids.

Watching Global Gold Demand

According to a recent report by Merrill Lynch, the world gold physical demand surged from 3,180 tonnes in 2003 to 4,957 tonnes last year. Gold jewellery demand accounted for 47% of the total demand in 2013, out of which China and India represented almost 63%. While the ETF holdings declined almost 900 tonnes last year, the outflow this year is only about 30 tonnes.

What to Monitor

Next week, we will monitor the FOMC rate decision and the U.S. Q2 preliminary GDP on 30 July, the Eurozone June unemployment rate and the July unemployment change in Germany on 31 July as well as the China July NBS manufacturing PMI Index, the U.S. July non-farm payrolls and unemployment rate, and the June U.S. core PCE price index on 1 August.