Analyzing Gold Variables: Pressure on Gold Prices
The expectations of Greece defaulting on its payment to the IMF might support gold prices to an extent. However, it will also lead to weakness in the euro.
The LEI (Leading Economic Index) is the Conference Board’s most important index. It tends to indicate what may happen in the future.
Central banks hold ~20% of all the gold that has ever been mined. It’s vital for gold investors to keep track of central banks’ gold reserves.
Investors are probably waiting for clarity on the timing of the Fed’s rate. Any hike would put downward pressure on bullion prices.
In our last update on ETF holdings, we reported that the SPDR Gold Trust’s (GLD) gold holdings stood at 714.2 tons as of May 20.
For the week ending May 15, a total of 45.5 tons of gold was withdrawn from the Shanghai Gold Exchange. This is 22% higher week-over-week.
The US Dollar Index measures the US dollar’s strength against a basket of six major currencies. It was up by 2% in the last five sessions. It ended at 97.02 on May 28.
According to the labor report released on May 21, initial jobless claims for the week ending May 15 increased by 10,000 to a seasonally adjusted 274,000.
After a firmer-than-expected inflation rate in April, markets have started speculating again about the Fed hiking rates before September this year.
After rising to its highest level in three months on May 14, gold lost 3.2%. It ended May 27 at $1,185.80 per ounce. Gold miners also followed gold prices.
In the week ending May 15, Chinese iron ore port inventories decreased significantly to 88.65 million tons. This is the lowest level since January 2014.
An iron ore futures contract is an agreement to buy or sell a particular amount of iron ore at a fixed price on or before a certain date.
Almost all of the iron ore miners are cutting costs, which is driving the cost curve down. This will put additional pressure on prices.
Industrial output measures the output of businesses involved in the industrial sector of the economy, including manufacturing, mining, and utilities.
Building sales in China have been falling every month since February 2014. The trend is clearly downward for China’s real estate sector.
Auto sales in China (FXI) fell 0.5% year-over-year (or YoY) in April to 1.99 million vehicles. Growth for April was the lowest for China’s auto sales since February 2013.
China’s credit growth clearly has been weaker than expected, especially given the recent easing measures adopted by the government.
China’s flash manufacturing purchasing managers’ index (or PMI) came in at 49.1. Numbers above 50 indicate expansion and below 50 indicate contraction.
The real estate climate index indicates that construction activity in China remains weak despite the government’s easing efforts.
Iron ore prices rallied close to 30% in May to reach a peak of $63 per ton on May 13. However, after that, they started a downward march once again.
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