By Mr. Prithviraj Kothari, MD, RSBL
The bull market for gold is entering its seventh year. For the past seven
months the market has traded roughly sideways. Collapsing energy prices
and a rising dollar have held back earnings and revenue growth.
In the past, the demand for gold from China had been a motivating factor
behind the rising prices for gold. But now, questions regarding the pace of
global economic growth have moved to the forefront recently by price declines
in the Chinese stock market, oil, commodities and high-yield debt in the past
three months.
Such a slow pace of economic growth continues to create a deteriorating investment
scene. Commodities and oil are key drivers of global economic growth, and falling
prices do not usually portend rising demand.
Gold has been trading in
successively smaller weekly ranges for the past 2 weeks. This week we closed
lower at 1095 with a very small range, and it appears that the bottom of the
bearish trend.
Spot gold, which hit a session low of $1,082.76 an ounce immediately after
the U.S. jobs report, managed to rebound 0.5 percent to $1,095.26 .
It had fallen to $1,077 on July 24; it’s weakest since February 2010.
Though we saw some buying momentum in gold as the week ended,
some market players state that since prices aren’t able to break the $1100
mark, gold does not bode well for a sustained rally.
Surprisingly, $1,100 appears to be the barrier that we just can’t seem to
break. Although there are expectations that the market might trade in a tight range
next week, gold remains an unwanted asset as the expectations remain that the
Federal Reserve will raise interest rates in September.
After rising on Friday, following the U.S. Department of Labor’s employment
report for July, the U.S. dollar weakened as afternoon trading wore on. It was
a neutral report- not too close and not too far from expectations. Therefore,
markets are finding it difficult to analyze and find a meaning in it.
Economists have noted that July’s nonfarm payrolls report helped to
rejuvenate those expectations. Although job gains of 215,000 were below
expectations, it stills a “solid” report.
Consensus forecasts ahead of the report were expecting that the U.S. economy
created 223,000 jobs. The unemployment rate remained unchanged at 5.3% last
month, in line with economist expectations.
The consensus was for 223,000 jobs and July came in at 215,000. However,
upward revisions to the previous months’ employment data plus a gain in average
hourly earnings and hours worked were both viewed positively by market
participants, and as a stronger signal the Fed could raise rates in September.
The U.S. labor market lost momentum in July, coming in under expectations
for the second consecutive month, according to the latest employment data from
the Labor Department; however, the numbers still showed jobs gains of more than
200,000.
Friday, the Bureau of Labor Statistics said 215,000 jobs were created in
July, down from June's revised number of 232,000; June’s initial report pegged
the growth at 223,000 jobs. May's employment data was also revised higher to
260,000 from the previous report of 254,000.
Although the data was slightly weaker than expected, gold prices sold off in
initial reaction to the news, dropping almost $10 and falling to a session low
of $1,081.40 an ounce.
Other highlights of the report were-
- The participation rate was also unchanged at 62.6% in July.
- Wage growth continues to expand at a steady pace, increasing 0.2% in July, compared with a 0.2% rise in June.
- The report noted that average hourly earnings rose five cents last month to $24.99. On an annual basis wages have increased by 2.1%.
- Employees also saw an increase in the work week; the report said that the average workweek rose by 0.1 hour to 34.6 hours.
Although it appears that some of the immediate selling pressure has been
alleviated, there is still strong negative sentiment in the marketplace. Retail
investors continue to expect to see lower prices in the near-term and market
professionals have once again turned bearish on gold.
The first data point that could have potential to move the gold price next
week comes Thursday with the release of U.S. advance retail sales for July. The
market ends the week with some inflation data with the release of the U.S.
Producer Price Index for July.
Despite the negative sentiment, there is still market professional who see
some hope for the yellow metal as technical momentum indicators continue to
highlight an oversold marketplace.
However, gold is still fundamentally in the doldrums from the bullish point
of view. Long term, gold will be pressured downward.
Markets don’t expect to see another sharp selloff until Aug. 19, when the
Federal Reserve will release the minutes of its July meeting. Markets will then
expect a clearer picture of an interest rate hike in September.
Till then gold is expected to trade sideways until some solid crucial news
is reported.
Markets could be stuck in a range next week in light volume as markets will
be deeper into the summer holiday season.
The
primary purpose of this article by Mr. Prithviraj Kothari is to educate
the masses of the current happenings in the Bullion world.
- Previous blog -"Rate Hike Creating Pressure On Gold"
http://riddisiddhibullionsltd.blogspot.in/2015/08/rate-hike-creating-pressure-on-goldrsbl.html
