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Why the short-term outlook for gold prices is still negative
Physical demand from China and India seems strong. This could provide short-term support for gold prices. The USD strength and the expectation of the federal rate hike could put pressure on gold prices.
The World Bureau of Metal Statistics (or WBMS) reports China’s mine output on a monthly basis. For January–August 2014, China’s production grew by 6.4%.
High-grading is when the high-grade portion of the mine is mined first. This increases the grade of the ore that’s mined. Also, it lowers the cost per unit. However, this trend is bad for long-term supply.
The value data for gold imports is reported by Reserve Bank of India (or RBI) every month. It shows India’s physical gold demand. India imports ~90% of the gold it consumes.
Traditionally, India has been the number one gold consumer. Recently, it was overtaken by China. It still accounts for ~25% of the total demand.
China’s inflation rate is reported by the National Bureau of Statistics of China. It’s reported on a monthly basis. For September, the inflation rate was 1.6%.
All the mined and imported gold in China can only be sold through the SGE. By tracking this data, investors can get a good short-term direction into China’s physical gold demand.
Investors need to monitor physical gold demand trends in China because of its sheer size. It impacts gold demand and gold prices. China’s lower demand appetite is negative for gold prices.
Outflows from exchange-traded funds (or ETFs) led to an ~28% fall in gold prices in 2013. They sold a combined 881 tons of gold. Investors should monitor the change in ETF holdings.
Money supply is the total amount of currency and other liquid instruments in circulation in an economy. Money supply data is usually collected and published by the country’s central bank.
Central banks hold ~20% of all the gold that has ever been mined. The sheer holding size is why central banks around the world can significantly influence gold prices.
The Fed’s balance sheet is still expanding. It expanded by 0.56% in one month. It was $4.450 for the week ending September 17. It grew to $4.474 trillion for the week ending October 15.
The non-farm payroll tracks the number of jobs added or lost each month. Total non-farm payroll employment increased by 248,000 in September—compared to 180,000 in August.
U.S. public debt is the amount owed by the federal government in terms of outstanding treasury securities. For September 2014, U.S. debt to GDP was 102.9%.
The budget balance is the difference between what a country’s government earns from taxes and other sources and what it spends. A budget deficit occurs when spending exceeds earnings.
The trade balance is reported by the Bureau of Economic Analysis (or BEA) on a monthly basis. The overall U.S. trade deficit in goods and services was $40.1 billion in August.
The Fed is expected to raise interest rates in 2015. The Fed is watching U.S. labor market data to determine when the U.S. economy is ready for its interest rate hike.
Gold is mainly traded in the U.S dollar (or USD). As a result, a weaker USD makes gold cheaper for other nations to purchase. It increases their demand for gold.
Real interest rates are adjusted for inflation. As real interest rates rise, other investments usually become more attractive. This reduces the demand for gold and vice versa.
Inflation slowed in recent months. It accelerated in the second quarter. This was mainly due to falling energy costs. As a result, the inflation outlook also softened for the rest of the year.