Gold prices gave up almost all the sparkle gained in August and fell to a four-week low on speculation that the U.S. Federal Reserve will commit to reducing stimulus next week. Silver and platinum prices also declined. Gold had reached a three-month high last month as tension in the Middle East escalated and crude oil rallied. U.S. stocks were little changed, after seven days of gains for the Standard & Poor's 500 Index, as investors weighed the prospects for Federal Reserve stimulus cuts and watched developments on Syria. Deteriorating near-term chart postures for both gold and silver markets are leading to fresh technical selling pressure. More risk appetite and the renewed strength in U.S. equity markets weighed on gold and silver as a bearish factor for safe havens. A much better showing for the latest U.S. weekly jobless claims data added to the selling pressure in gold and silver. December Comex gold was last down at $1,326.10 an ounce. December Comex silver last traded down at $22.06 an ounce. Many traders and investors are looking ahead to next week's meeting of the U.S. Federal Reserve's Open Market Committee (FOMC). A slight majority of the marketplace believes the U.S. central bank at next week's meeting will announce it will begin to scale back, or "taper" its monthly bond-buying program. For the past several weeks the marketplace has been fixated on what the U.S. central bank will announce at the conclusion of next week's FOMC meeting. In contrast, reduced expectations of the degree of Fed tapering eased pressure on emerging market currencies, which had been driven up as the cheap U.S. money was pumped into high-yielding stocks and bonds, and are now falling as these trades reverse.
Jobless claims in the U.S. declined last week to the lowest level since April 2006 as upgrades to computer systems in two states caused those employment agencies to report fewer applications. First-time claims for unemployment insurance fell by 31,000 to 292,000 in the week ended Sept. 7, which also included the Labor Day holiday, according to Labor Department data, reported Bloomberg. The four-week moving average of jobless claims, a less volatile measure than the weekly figures, fell to 321,250 last week, the lowest since October 2007, from 328,750. The number of people continuing to receive jobless benefits dropped by 73,000 to 2.87 million in the week ended Aug. 31. Another report from the Labor Department showed the cost of goods imported into the U.S. was unchanged in August. No change in the import-price index followed a 0.1% gain in July.
Payrolls expanded by 169,000 workers last month after rising 104,000 in July, Labor Department data showed on Sept. 6. The average over the two months was the smallest since June and July of last year. The jobless rate dropped to 7.3% in August, the lowest since December 2008, as workers left the labor force. Eurozone industrial production fell by 1.5% from June to July, for the steepest one-month decline in a year. Year-on-year the July decline in industrial production was 2.1%, which put Eurozone industrial production at a three-year low. This important piece of economic data now calls into question the ability of the European Union's collective economy to pull out of recession.
Gold prices to lose more shine in 2014:
Global gold demand will fall to 2,237 metric tons in the second half from 2,309 tons in the same period a year earlier and 2,533 tons in the first six months as bar buying drops from a record and central banks add less to reserves, Thomson Reuters GFMS said today. Holdings in the SPDR Gold Trust (NYSEARCA:GLD), the biggest bullion-backed exchange-traded product, were unchanged for a second day at 917.13 tons yesterday, after tumbling 32% this year. In an update to its Gold Survey 2013, Thomson Reuters GFMS said the market could beat a retreat below $1,300 toward the end of 2014 as U.S. monetary stimulus is withdrawn, fuelling talk of rising interest rates. Gold prices are likely to contract further in 2014, after tumbling for the first time in more than a decade this year with the case for bullion undone by confidence in a stabilizing global economy. One of the most important elements is that when they start talking about raising interest rates that is also likely to put some pressure on the market in terms of sentiment.
Gold tumbled into a bear market in April, hitting a three-year low in June of $1,180.71 an ounce, on concern that the Federal Reserve would pare stimulus as the economy improved. Gold may extend its 19% slump since January as prices on charts form a "head and shoulder" pattern that signals more selling, according to Credit Suisse Group AG. The pattern comprises three consecutive peaks on a chart, with the middle being the highest. Fibonacci studies are based on the theory that prices rise or fall by certain percentages after reaching a high or low.
Expect Lower Physical Gold Demand - Thomson Reuters GFMS:
GFMS remained cautious on physical demand growth, saying that exceptional levels seen in the first half were unlikely to be replicated in the coming months as inventories in traditional buying stronghold China had been replenished. April's gold selloff - which saw spot prices slump $200 an ounce in two days in their sharpest slide in 30 years - and another retracement in June sent bar and coin demand to a record high of 725 tones, and jewelry fabrication to its strongest since 2007 at 1,137 tones in the first half of the year. Thomson Reuters GFMS said first-half Chinese high-carat jewelry buying rose to 345 tones in the first six months of the year, against 500 tones for the full calendar year in 2012. It expects 620 tones this year. China's physical demand is slowing down as gold prices rose from earlier lows and because there was so much buying between April and August that people already stocked up for the upcoming gifting season. China's gold market has grown at a blistering pace in recent years, helping fuel a rally in gold prices to a record $1,920.30 an ounce in 2011. The country is poised to overtake India's position as the top gold consumer by as much as 100 tones this year, GFMS said. Indian jewelry fabrication jumped by 25% in the first half to almost 350 tones. But demand is now expected to fall as the Indian government introduced a series of measures to curb gold imports, due to their contribution to the country's expanding trade deficit. GFMS said producers remained net de-hedgers of gold in the first half of the year, with an increase of interest in establishing fresh hedge positions more than offset by several producers taking the fall in price as an opportunity to close out hedging contracts more cheaply and in some cases for profit.
Gold ETFs outflows heavy in 2013:
Gold Exchange-traded funds, which issue securities backed by physical metal, lost 660 tones as of the end of August from a peak of 2,691 tones at the end of 2012 on Fed tapering expectations. The amount of gold that has come out of gold ETFs was more than enough to feed physical demand from Asia after the big price fall in the second quarter, which was too good an opportunity to miss for an awful lot of people from grassroots, retail, private individual purchasers. Net central bank buying fell by 32% to 191 tones in the first half and is seen reaching 361 tones for the year, down from 445 tones in 2012, GFMS said. On the supply side of the market, global mine production rose three percent to 1,416 tones in the first six months and is expected to rise 0.8% to 1,501 tones in the second half. Scrap supply fell 14.3% to 662 tones in the same period and will continue to drop by 10.2% to 736 tones in the second half. Grant Williams, one of the most highly respected fund managers in Singapore and a perceptive analyst of the gold market, said that SPDR Gold Shares, custodians of the GLD ETF have refused to give people physical gold in exchange for the shares as investors are entitled.
Gold and silver price outlook for September:
Gold prices may slip further after testing $1,337, the 38.2% retracement of the June-August rally on Fibonacci analysis. A fall below that level should add weight to the scenario that a broader bear trend is resuming, taking gold prices lower to $1,270 and then $1225. A trend reversal with sustained upside movement in gold above $1369 could lead prices further to $1450 and then to $1531. I remain bullish on silver as always maintained. Silver prices have a reasonable support around $22, but may decline close to $19.90 on strong downside pressure.
US debt limit and delays on spending plan:
The top four congressional leaders will meet today to discuss financing the government after funding runs out Sept. 30 and raising the U.S. debt ceiling, which could be reached by mid-October. (Read more on Summary Of The Current US Debt and Economic Situation.) House Republican leaders are struggling to avoid a U.S. government shutdown at month's end after delaying a vote on a spending plan opposed by dozens of their caucus members. House Speaker John Boehner of Ohio and Majority Leader Eric Cantor of Virginia couldn't win enough support this week for a 2014 spending plan that also would force the Democratic-led Senate to vote on defunding President Barack Obama's health-care law. At least two dozen Tea Party-backed House Republicans balked because the budget proposal would still allow financing for the health-care measure. Boehner and Cantor proposed a plan that would require the Senate to vote on defunding the health-care law before the House would send over a $986.3 billion short-term spending measure. Second-ranking House Democrat Steny Hoyer of Maryland said this week he was urging colleagues not to vote for it.
Gold prices may remain weaker on several counts mentioned above and any technical bounce ups should be used for adding short positions for a target of $1,270 and then $1225. (For more read - Supply and Demand Analysis of Gold and Silver.) The Syrian issue though may have cooled for now, is far from being dead and buried. Traders should keep a watch on Syria or the Debt Limit issues as any of these could easily provide the necessary spark for gold to reverse the trend upwards. A trend reversal with sustained upside movement in gold above $1369 could lead prices further to $1450 and then to $1531. I remain bullish on silver as always maintained. Silver prices have a reasonable support around $22, but may decline close to $19.90 on strong downside pressure. It would be a splendid opportunity to replenish the few positions in silver, exited on sharp rises earlier.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I remain bullish and hold physical silver as always maintained. It would be a splendid opportunity to replenish the few positions in silver that I exited by booking gains on sharp rises earlier.