This week we will finally wave off October which has been the first month in the last five to register a decline in the gold price. It hasn’t all been bad, last week holdings in gold-backed exchange-traded products reached record levels.
Investors have been disappointed by the inability of the gold price to break through $1,800 following the announcement of QE3 last month. The looming fiscal cliff is also failing to help matters.
Whilst the fiscal cliff has the potential to send the US back to a recession, and thereby help the gold price, the conveniently placed US election is likely to see the fiscal cliff staved off on the back of arguments by the successful candidate that the US is too weak to deal with such changes to the economy. This may result in further waiting by those who have decided to buy gold bullion to see the benefits of monetary devaluation.
This morning retail sales in Japan have been reported as lower than expected, this has prompted further expectation of government stimulus which has given the gold price a slight boost. Economists had predicted a 1% increase in retail sales from last year; instead they were rewarded with a 0.4% gain. The Bank of Japan is due to meet tomorrow to make a decision regarding monetary policy, this is having already announced $9.4bn of stimulus last week.
In the next ten days the two pieces of information everyone will be waiting for will be the US non-farm payroll data this coming Friday and, of course, the US election results next week. Whilst investors wait for these results, both of which are likely to affect gold, the gold price is likely to remain pretty flat.
Last week the gold price received a slight boost after US economic data showed growth had improved slightly in Q3 thanks to a last minute push in consumer spending. Gains were capped however as the dollar gained some strength and concerns regarding both Greece and Spain continued.
Whilst last week wasn’t great for gold, it failed to break cleanly below $1,700. This is likely due to buyers who were previously put off by higher prices earlier in the month, returning to the market. Dealers in Singapore are also reporting an increase in buying activity in India ahead of Diwali and wedding season.
As we write, Spanish retail figures have been released which show a significantly bigger decline in retail sales compared to last year; sales were expected to have fallen by 6.2%, instead they have fallen by 10.9%. The euro had edged down this morning in anticipation of this news.
Last week David Cameron and the rest of the UK’s coalition government were slapping themselves on the back in a brief moment of self-congratulatory celebrations. This, however, will prove to be short lived as manufacturing data released this coming Thursday is unlikely to match last week’s happy news. This is however expected given the tough environment manufacturers still struggle with; consumers are tightening their belts whilst export demand remains low.