The US dollar broke substantially above the pivotal 80.00 mark on the trade-weighted index this morning, prompting fairly sizeable selling in the precious metals’ complex. Spot gold fell to an overnight low of $1,705 while spot silver showed bids near $31.80 per ounce. There is not much new to report on the physical side of the gold market in terms of the level of Indian demand as we approach Dhanteras and Diwali – the offtake remains tepid.
On the other hand, there is a new development in India that does warrant some attention. Continuing its overt efforts to curb gold appetite (make that: gold fever) among Indians, the Reserve Bank of India this week banned the country’s banks from making loans for the purchase of gold by jewelers, or for the purchase of gold ornaments and coins. The RBI has set up a working committee that needs to come up with various ways of dealing with hitherto (up to last year anyway) burgeoning gold imports.
The gold business in Saudi Arabia, on the other hand, has gone from bad to worse with the closure of the 500th outlet in that country this year. Whereas the Kingdom once had over 4,000 gold shops, more than 1,500 of them have opted to leave the business owing to the elevated international price of the yellow metal and to the waning demand for it by local consumers. The just-concluded Hajj season did not translate into improved demand for gold and it saw the closure of some 30 gold-selling shops in the holy city of Makkah. Overall gold sales in Saudi Arabia have collapsed by 40 to 50 percent according to recent tallies.
Within the context of the above pieces of industry news (the jewellery one, that is) it is not difficult to see why the analysts at Standard Bank (SA) write that: “An important reason for the weakness (relative to last year) in gold physical demand, from especially Asia, is due to jewellery demand. While seasonality should support gold jewellery demand in Q4, it is clear that jewellery demand is unlikely to support the gold price as it did in previous years. Investment demand will have to pick up the slack and, while we believe that it is possible, one would have to be more patient before rallies become sustainable. The faster the gold price rises relative to income growth, the more negative the impact will be on jewellery demand — this should provide a drag on the gold price.”
Turning to the USA, the Treasury Department’s US Mint reported gold and silver bullion sales which are anything but post-card material to write home about when seen in the context of previous demand levels. The first ten months of 2012 saw sales of 54,500 gold coins – a drop of about 40% from last year’s similar period. Silver Eagle sales for the January-October period were down by 21% to 28.9 million units from last year’s 36.4 million.
The greenback’s 0.55% advance to fresh seven-week highs on the aforementioned index was largely attributed to the string of positive US economic data that flowed into the markets all week long and then it received a “nitro” boost after the US jobs numbers (more on that later). Background markets had oil slipping 70 cents per barrel, the euro breaking to under $1.29, copper falling 1.1%, and platinum and palladium down $9 and $4 respectively. Rhodium bucked the trend with a gain of $25 to $1,175 per ounce on the bid-side. The Dow advanced a hardly-noticeable 6.5 points in early trading.
We are referring here to items such as: the highest level of consumer confidence in over four years, a further improvement in the ISM manufacturing index, a decline of 9,000 initial weekly jobless claims filings, and an ADP private payrolls survey that showed 158.000 jobs having been added in the US in October, beating economists’ forecasts. We could add a few other metrics to that list, such as the best level of home builder sentiment since mid-2006, generally quite upbeat October retail sales (up to the unfortunate arrival of Hurricane Sandy anyway), etc. In other words, not exactly the “unraveling” of America taking place right here, right now, as some market observers would have you believe.
This morning’s US labor market report – the last one before President Obama and GOP candidate Romney face the verdict of voters next Tuesday – was also heavily discussed prior to its release. Economists had projected that 125,000 new jobs may have been created in America but that the overall unemployment level may have risen by 0.10% to 7.9% from the lowest level that was witnessed during Mr. Obama’s White House tenure. As it turns out, US employers added 171,000 new jobs last month, easily beating economists’ estimates, albeit the general unemployment did tick higher by the exact tenth of a percent that had been predicted. On a related note, Canada’s employers added…no jobs last month.
Gold prices immediately fell to just under $1,695 per ounce (a loss of more than $20 an ounce) in the wake of the BLS figures, once again raising questions about just how strong the support for the metal might turn out to be at or near the pivot figure of $1,700 per ounce. We should know by the end of today’s session and as we head into next week.
TD Securities analysts had warned earlier in the week that "should a negative catalyst present itself, gold still risks a substantial downside move given the still lofty speculative long positioning (in Commodity Futures Trading Commission data). A price drop to near $1,660-50 per ounce could certainly happen, which is consistent with the 100-200 day moving average." Whether or not the payrolls figure turns out to be that ‘catalyst’ remains to be seen, at this juncture.