GOLD ALL SET TO SHINE

Last week again, gold reacted to various factors like US jobless claims report, SPDR Gold Trust, Canada Employment report and ECB Interest rates.

News released in the market that European Central Bank was prepared to buy bonds to help the nations facing economic turmoil which led to a rise in gold prices with gold reaching almost an 11 month high of $1796.5 on Thursday.

Investors have been closely eyeing the result of Bank of Japan’s policy meeting which is expected to keep things unchanged for Japan

Another important data for gold market is the US jobless claims report. The report showed an al together different picture of the US economy. Unemployment rate unexpectedly fell to 7.8% in September, down from 8.1%, as a survey of U.S. households showed 873,000 more Americans had jobs compared to a month earlier. January 2009 has witnessed such low unemployment rates.

A bettering economy showed signed of development. Good economic news is good political news which also adds up to good financial news. Hope this reports make the picture brighter for precious metals.

 In Canada, the jobs data was mixed with the unemployment rate rising one-tenth of a point to 7.4 per cent in September even as the economy added 52,100 jobs: five times the number expected.

The Federal Reserve said last month it will purchase USD40 billion of mortgage-backed securities every month until the labor market improves. The labor market has to improve for QE3 or else the FED might have to introduce other stimulus measures.

The labor unrest in South Africa has spread to more mines run by the world’s top platinum producer Anglo American Platinum in a wave of wildcat strike action that has hit the country’s mining sector.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings hit a record high of 1333.44 tonnes by Oct. 4. 

Vagueness over Spain’s request for a full scale bail out has also affected the markets. Analysts and market players predict the Spain might go in for a full scale sovereign bail out but Spain’s Prime Minister – Mariano Rajoy denied the same

A bailout would allow the ECB to step in and buy Spanish sovereign debt, which would result in reduced borrowing costs for the debt-strapped nation. But Spain has been reluctant to do so because it may come with conditions on its budget. 

Moreover, gold prices are expected to rise further given the tensions prevailing on the Syria - Turkey border.

With an overvalued currency, tightened credit conditions and the prospect of higher interest rates, the economy could be vulnerable to a further slowdown from the under two per cent pace recorded so far this year 

Meanwhile, in India, Stockists have been buying gold heavily given the rise in demand with the onset of the festive season. And a recent dip in rupee has led to re stocking of inventory by these stockists as they expect a rise in gold prices before Diwali and the beginning of the marriage season

WAIT & WATCH: The mantra for precious metals!

Gold and silver did not show much movement and remained almost stable on Wednesday.

Gold edged up by 0.3% last week and reached an average of $1772.34 which is higher than the last week average of $1749.04. Silver too increased by 1.8% and reached an average of $34.6 compared to last week’s $33.99

Apart from the regular reports like US jobless claims, Euro zone crisis, launch of QE3, Chinese growth data etc, other factors that were responsible for movements in the markets were the US home sales and core durable goods report, the ETP’s report, the Italian bond auction and most importantly the relation between dollar and various currencies.

The Euro and the Australian dollar declined against the US dollar. This could be one of the reasons that could have restrained the recovery of precious metals. The relation between the US dollar and other currencies plays an important role in the movement of gold and silver prices. A further decline of the Euro against the US dollar could pull down the prices of precious metals.

The German Bond Auction (to be held on Thursday) may relieve the market of its bullish sentiments if it is held out successfully.

Reports claim that the ETPs continue to raise their bets on silver as the amount held in ETPs has reached 18,525.76 metric tons which is only 0.6% shy from its record high from last year. This suggests that many bullion traders still have faith in precious metals.

Moreover the comment by the President of Federal Bank of Philadelphia (on the recent decision of the launch of QE3) that it may not help recover the US economy has once again created some doubts in the minds of market players and has thus created a negative impact on precious metals

While the fresh EU turmoil is pressuring the raw commodity sector this week, and the precious metals have chosen to follow, it’s seems that if there is a serious deterioration in the ongoing EU debt crisis, then gold prices would see fresh, strong safe-haven demand surface.

Summing it up, gold and silver will continue to remain more or less stable unless there is some big proclamation regarding the above mentioned reports. The launch of QE3 did have positive effect on precious metals but some constructive data from the other sources together will help boost the prices further. The markets will mainly await the ECB President speech, the US core durable goods report, the home sales report, Final GDP estimate and the jobless claims report.

Plenty in basket – We just need to wait and watch.