Gold Falls as Markets ‘Sceptical’ on Gold’s Upside despite China’s Robust Demand
Monday, 8/07/2023 14:15
GOLD PRICES reversed most of Friday’s gain on Monday, while markets remain ‘sceptical’ about the upside potential as gold ETFs continue to liquidate and net bullish bets on futures and options declined, although China’s consumer and central bank continued to show robust demand, writes Atsuko Whitehouse at BullionVault.
Gold prices fell 0.4% to $1935 per ounce after the yellow metal cut its weekly loss to 0.8% following mixed job report data from the US on Friday.
“Gold traders and investors remain sceptical about the current upside potential,”
tweeted derivatives platform Saxo Bank's commodity strategist Ole Hansen, pointing out that ETF investors are net sellers for the past 10 weeks and leveraged futures funds in the last two weeks cutting length to a 4 weeks low.
Investors as a group cut their position in giant
gold-backed ETF the SPDR Gold Trust (NYSEArca: GLD) last week, with the fund liquidating 6.9 tonnes of bullion to reach its smallest size since the beginning of March – just before the collapse of Silicon Valley Bank – at 906 tonnes after shrinking for two weeks in a row.
The smaller iShares gold product (NYSEArca: IAU) also shrank for the second consecutive week by 3.7 tonnes to its smallest size since mid-March 2023.
In July, the GLD and IAU declined by nearly 9 tonnes and 4.5 tonnes respectively, marking the second consecutive month for outflows.
Latest data shows that hedge funds and other leveraged speculators in Comex gold futures and options cut their bullish betting for the second week in a row on gold as a group in the week-ending 1st August, and grew their bearish betting for two consecutive weeks.
Overall, that pushed the net long position of Managed Money traders to the smallest since 7 July 2023.
In contrast, gold prices on the Shanghai Gold Exchange continued to show strong demand with a premium to London, holding 5-month highs at $30 per ounce on Monday, after wholesale bullion in the metal’s No.1 consumer market increased the weekly average to $28 last week.
“China’s gold demand is expected to improve in the second half of the year due to stimulus policies aimed at boosting consumption,”
said Bernard Sin, regional director, Greater China at MKS PAMP.
The state-mandated trade group the
China Gold Association stated that last month private-sector demand for gold
rose over 16% in the first half of 2023 compared to the same period in 2022, when Shanghai and other cities were in lockdown.
The People’s Bank of China meanwhile raised its gold reserves for a
ninth straight month in July 2023 as it has reported gold purchases of 23 tonnes which lifted year-to-date purchase to 126 tonnes. Its gold reserves now stand at 2,136 tonnes.
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing – rose 7 basis points to 4.11% on Monday, after reversing 9-month highs
last session as US job growth remains moderate in July.
The US economy added 187,000 new non-farm jobs, according to data released by the Bureau of Labor Statistics, compared with forecasts of 200,000. Wage growth, however, exceeded expectations.
“For the Fed, this report has to be a relief, but likely doesn’t tilt the scales one way or the other,” said PIMCO managing director Tiffany Wilding following the
jobs report on Friday.
This week’s data “may be more convincing and push the Fed to be patient and watch how the economy evolves for another meeting.”
The latest US consumer price index will be released on Thursday. The data is expected to show what the country’s annual headline inflation rate accelerated to 3.3% in July 2023 from 3% the previous month.
Federal Reserve governor Michelle Bowman meanwhile
said on Sunday, “Additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2 per cent target,” referencing the policy-setting Federal Open Market Committee, ahead of a closely watched measure of US inflation on Thursday.
The Dollar index – a measure of the US currency's value versus its major peers – was 0.3% higher, moving away from Friday’s one-week low.
Gold priced in Euros meantime edged lower 0.2% to €1762 as Euro weakened against the US dollar in FX markets, after German industrial production dropped more strongly than forecast in June, while the UK gold price in Pounds per ounce fell 0.5% to £1519.
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