Last week the gold price fell 3.3% as the S&P 500 ended the week at an all-time high, closing at 1,923.57 on Friday May 30. This morning it continued to fall for the fifth straight session (by 0.4% by 9:30AM), its longest ‘losing streak’ in over seven months.
The SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, saw holdings fall for the second, consecutive month in May to 776.89 tons, the lowest since December 2008.
What lies ahead for the gold price?
Much of gold’s 3.5% rise since the beginning of the year was due to tensions rising in and around Ukraine. On Friday, a Pentagon spokesperson told reporters that the majority of Russian troops have been withdrawn from the Ukrainian borders. Since mid-March it has fallen 11%. We did warn, when gold was climbing, that a price climb due to war was rarely sustainable, as we have seen in recent history.
Physical demand is yet to pick up, as it did last year when the price fell, and we are likely to see little price activity prior to the European Central Bank’s policy meeting this week and the release of the U.S. jobs data. At present gold is facing a double-edged sword – rising U.S. equities and a strengthening U.S. dollar.
The ECB meeting later this week is key as the policy committee is expected to take some measures to combat persistently low inflation and credit growth. Draghi’s comments following the May meeting that the council would be ‘comfortable acting next time’ has led to speculation that measures such as negative interest rates or lowering of refinancing rates may be announced.
Speaking of stimulus, there have been some small stimulus measures implemented in China in the last month. This should prove positive for gold demand in the country; however it is yet to translate to increased imports and premiums.
U.S. gold coin demand falls
On the physical demand front, May’s U.S. coin demand also fell from the previous month due to ‘lackluster’ retail buying interest. Whilst the fall in gold coin demand was 35,000 ounces, from 38,500 in April, this was a 50% increase year-on-year.
In contrast, silver coin demand not only increased from April’s numbers (3.99 million ounces from 3.57 million) but they were also up on the year.
The U.S. Mint expects gold coin dealerships will pick up their purchases this month on the back of the price drop.
There have been some news reports about Turkey’s unexpected April gold import and export figures. Whilst exports of precious metals and stones fell by 43%, the export of gold to Switzerland climbed from $102,000 for 2013 to $2 billion in the first quarter of 2014. It is believed that the climb is due to the gold-for-gas deal between Turkey and Iran.
Silver finished the week at its lowest since May 2013, having fallen 0.7% in the last week. We usually expect to see silver fall harder and faster to gold but in this case it is remaining resilient. Perhaps no surprise given the rumored economic recovery, in which silver’s industrial use will be much called upon.