GOLD PRICES retreated 1.6% from new 9-week highs against the US Dollar in London trade Friday, dropping back to $1094 after new data said the US economy added 292,000 net jobs in December – almost 50% more than analysts’ consensus forecasts.
The Shanghai stockmarket had earlier ended the day 1.3% higher, cutting its weekly plunge to 10%, after the abolition of the 7% circuit-breaker – twice triggered already in 2016, and blamed by some retail investors for preventing them from selling and so worsening confidence.
US Treasury bond yields edged higher for the first time this week, while crude oil bounced 1.5% from new 12-year lows.
Gold’s sharp rise in the first week of the New Year repeats the pattern of 2014 and 2015, and it has now risen in eight of the last 10 Januarys.
“[But] unless a major war breaks out between Saudi Arabia and Iran, we do not see gold prices rising rapidly and for prolonged periods. The main theme affecting gold this year will not be a Chinese slowdown but the expected path of interest rate hikes by the Fed. [Because] the stronger Dollar and yields will raise the opportunity cost of holding gold.”
The Dollar rose on Friday’s US jobs data, halving yesterday’s drop against the Euro and helping buoy gold prices for German, French and Italian investors above €1010 per ounce – up some 3.7% for 2016 so far.
Gold priced in Dollars meantime dropped back below $1100 per ounce, but held a 3.3% gain for the first week of the year, after touching its highest level since 4 November in Asian trade.
“Gold has rallied at the same time as Treasuries,” said a weekly note from Chinese-owned ICBC Standard Bank overnight, “while the Japanese Yen has strengthened.
“That is indicative of genuine flight to safety/quality flows.”
US mutual funds and other equity products worldwide saw investors pull out $8.8 billion this week, according to Bank of America Merrill Lynch, “the largest outflow in 17 weeks,” says Reuters.
“High-quality government, municipal and investment-grade bond funds were the big gainers, with some $3.3 billion of inflows.”
Back in gold, “Some financial investors have clearly been lured in again by the higher prices,” says a note from Germany’s Commerzbank, pointing to Thursday’s net addition of 8 tonnes to the gold backing exchange-traded trust funds.
The largest such fund, the SPDR Gold Trust (NYSEArca:GLD), added just over 4 tonnes – its first inflow since 18 December marked a jump in gold prices from new 6-year lows at $1045 per ounce – to reach 645 tonnes in total, still well over 50% down from its peak of end-2012.
Looking at the Asian market, “The willingness of physical buyers to pay prices [above] $1100 is not certain,” says ICBC Standard Bank, but $1140-1150 by early February’s Chinese New Year “is a realistic target” as speculators in Comex futures and options still hold large ‘short’ bets, giving scope for further price gains as they unwind their positions.