Gold corrected sharply on Thursday, falling to a new low for the week at 1237.70, but support defined by last week's low 1230.85 remains well protected. The retreat is being attributed to the Fed's decision yesterday to taper further, and slackening demand for gold in China.
Despite the recent spate of weaker U.S. economic data, and the heightened volatility in emerging markets, the Fed opted to continue scaling back on asset purchases. The FOMC announced on Wednesday that they would taper by an additional $10 bln per month. That was in line with expectations, but $65 bln a month moving forward is still a pretty hefty addition to the Fed's balance sheet.
Gold initially held up well in the wake of that news, but then started to retreat in Asia. Reuters reported that volume on the Shanghai Gold Exchange was "just 1.5 tonnes on Thursday, compared with Wednesday's 8.4 tonnes and Tuesday's 14 tonnes."
This should come as no surprise as pretty much the whole of China goes into motion in the days before the Lunar New Year, which is Saturday, February 1. People travel to spend the two-week long holiday with family. It's sort of like equivalent of our Thanksgiving, Christmas and New Year's combined.
I would say this is more likely a pause in Chinese demand, rather than waning demand. This may make this pullback a pretty good buying opportunity.
A firmer dollar and a rebound in stocks is adding further weight to the yellow metal. The Dow registered it's lowest close in 13-week yesterday, and was more than 5% off the record high of 16,588 from late December. Despite today's modest bounce, stocks are still looking a little shaky.
We saw some mixed economic data this morning: Q4 advanced GDP came in at +3.2%, pretty much in line with expectations, showing a marked slow-down from the 4.1% pace in Q3. Initial jobless claims rose 19k last week to 348k. Hardly good news.
The NAR pending home sales index plunged 8.7% in Dec to 92.4, way below expectations of -0.3%. That's the lowest print since October 2011, when the home buyer's tax credit expired. Realtors blame weather this time around. However, the preponderance of recent housing market data is suggestive of renewed weakness in the sector, more likely attributable to higher mortgage rates triggered by the taper.
Emerging currency markets seem to be getting a bit of a reprieve today as well, following crazy volatility yesterday in the Turkish Lira and South African Rand specifically. It is very unlikely that rate hikes in both of those countries are panacea, so rather than declaring the storm has passed, I think this is just the eye of the storm.
Source : UsaGold.com/DailyQuotes
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