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Why gold prices could still be under pressure
There’s visible pressure on gold prices in the short to medium term. Though physical demands from China and India are strong, that alone is probably not enough to alleviate the pressure from the strengthening U.S. dollar and lower crude oil prices.
Year-to-date, 1,814 tons of gold have been withdrawn through the SGE. This indicates a strong physical demand for gold in China.
Overall gold holdings in ETFs were 1,611 tons as of December 4, 2014, which is its lowest value in five years. Recent outflows suggest that investors might be moving into other risky assets such as equities.
Cheaper oil means lower inflation. This means gold should be affected negatively, as it’s usually considered a hedge against inflation.
Any inching upward of PCE means the Fed is inching closer to an interest rate hike. As long as the Fed doesn’t reach its target of 2% core PCE inflation, it will let the inflation rate run.
Improved U.S. jobs data have pulled forward market expectations for the Fed to start hiking interest rates. This information offers a look at the future direction of gold prices and ultimately gold-backed ETFs.
Consumer spending in the United States rose seasonally adjusted 0.2% month-over-month in October. Economists expect consumer spending to pick up as people start to spend their windfalls from falling oil prices.
The Thomson Reuters/University of Michigan’s final November 2014 reading on the overall index on consumer sentiment came in at 88.8, its highest reading on a final basis since July 2007.
It’s important to track the U.S. purchasing managers’ index (or PMI) while keeping an eye on the manufacturing index for other economies, usually the ones that impact the U.S. dollar the most.
The U.S. dollar reached fresh multi-year highs as a stronger-than-expected November U.S. jobs report was released by the U.S. Bureau of Economic Analysis (or BEA).
The vote is a blow to the Save Our Swiss Gold campaign that had the hopes of moving Switzerland back to a gold standard
Investors usually view gold as an inflation hedge. As a result, gold prices are influenced by several related factors.
In the European Central Bank’s (or ECB’s) November meeting, ECB president Mario Draghi said that the central bank is open to embarking on new measures if its current package of instruments fails to increase inflation.
One of the main reasons investors hold gold in their portfolios is because they think it hedges inflation. When inflation is high, the value of paper currency falls in terms of the goods and services that it can buy.
Gold is used as an investment alternative. Investors think that it protects money’s purchasing power. As an investment, it has to compete against other investments that are available in the market.
Gold mainly trades in US dollars (or USD). As a result, a weaker USD makes gold cheaper for other nations to purchase. It increases their demand for gold.
Gold ETF holdings have fallen to a five-year low. Recent outflows suggest that investors might be moving into other risky assets like equities, as US economic prospects have started looking up.
In 2013, China became the world’s largest gold market. It accounts for around one-third of global gold demand. The World Gold Council (or WGC) expects demand to grow by at least another 20% by 2017.
All the mined and imported gold in China can only sell through the SGE. By tracking this data, investors can get a good picture of the short-term direction for China’s physical gold demand.
Along with China’s import data, India’s gold import data gives you a solid direction for physical gold demand in the Asian market. Traditionally, India has been the number-one gold consumer.