The U.S. Comex gold futures fell 0.85 percent this week after falling 3.19 percent in the past two weeks. In fact, at $1,709.40, the gold futures were trading a mere 1.43 percent higher before the run-up in price in September in anticipation of the Fed's QE3. The CRB Commodities Index followed a similar pattern and fell 0.74 percent this week after declining 4.55 percent in the past two weeks. Both the S&P 500 Index and the Euro Stoxx 50 Index were weak in the past two days, falling 1.40 percent and 2.53 percent respectively while the Dollar Index strengthened 0.44 percent.
Several recent events have strengthened the U.S. dollar while punctured the rally in gold. With the recent U.S. economic data being stronger than expected and also stronger than its neighbours, gold traders are eagerly anticipating the U.S. FOMC meeting conclusions this Wednesday for any change in tone or pace in easing. The September core inflation in the U.S. was unchanged from August after rising 0.4 and 0.2 percent in July and August respectively, thus reducing inflation expectations. On Monday, Moody's downgraded Catalonia by two notches and lowered ratings for four other Spanish regions. The 10-year Spanish government bond yield has crept up 32bp in the past 3 days due to Moody's actions and no aid requested for Spain yet, leading to more U.S. dollar strength.
Technical selling of gold has occurred as the price of gold broke below its 50-day moving average on Tuesday. When gold prices failed to breach $1,800 an ounce, traders have been paring back positions. The CFTC data as of the week ending on 16 October showed that gold speculators' net long positions (futures and options combined) fell 7 percent from last week, a two-month high. Traders also reduced their bullish bets across all commodities to the lowest level since 24 July according to Bloomberg, reflecting their concerns on slowing economies.
Some positive events to watch out for include the upcoming festival and marriage seasons for the Indian consumers to buy gold. Bullion price in India has retreated 4.4 percent from the high reached on 14 September. Gold demand is expected to rise in Q4 2012 due to weaker prices and stronger jewellery and investment purchases according to the All India Gems & Jewellery Trade Federation.
Sharps Pixley, London