Gold Faces A Chaotic Day

Gold Faces A Chaotic Day
Gold Faces A Chaotic Day

Asian markets are trading on firm note as Chinese GDP growth was in line with economist estimates and industrial production also remained on a positive note along with favorable data from the US economy.  

US Building Permits increased by 0.89 million in September as against a previous rise of 0.80 million in August. Housing Starts rose by 0.87 million in September from earlier rise of 0.76 million in August.

China’s Gross Domestic Product (GDP) grew at slow pace of 7.4 percent in Q3 of 2012 as against a rise of 7.6 percent in Q2 of 2012. Fixed Asset Investment increased by 20.5 percent in September from previous rise of 20.2 percent in August. Industrial Production increased by 9.2 percent in September as compared to earlier rise of 8.9 percent in August. Retail Sales also grew by 14.2 percent in September with respect to rise of 13.2 percent a month ago.

The US Dollar Index continued to show weakness and ended 0.5 percent on the back of rise in the risk appetite amongst the market participants as favorable home sales data indicating that the economy is on the path of recovery. This led to decline in the demand for the low yielding currency.

This morning, gold moved up continuing its two days rally. Positive data from China and positive news on US housing number has supported the gold prices.

Yesterday, gold inched up, rising for a second day with the support of a stronger euro as concerns about the bloc’s debt crisis eased after Moody’s affirmed Spain’s rating and German business sentiment improved. The euro hit a one-month high and the dollar index dropped to its lowest in nearly two weeks, reflecting a pick-up in risk appetite after Moody’s Investors Service affirmed Spain’s investment grade. In the United States, the latest data showed the world’s largest economy still faces challenges, suggesting to investors that economic growth was not strong enough for the Federal Reserve to curtail its stimulus measures.

Today should be very chaotic day for gold. On one side, the optimism has hold the euro’s gain and gold too recovered from the September 13 low, while on the other hand the European government is seems to be confused on how to deal with Spain, Greece and the economy so we have to wait for the actual outcome while we cannot absolutely rule out the possibility of Spain not asking for the bailout. Greece has faced a growing revolt among the coalition partners against an additional 13.5billion euros austerity, a prerequisite for the international bailout. They are already in need of two years of timeline to implement the austerity. However, buying time may not be supportive for the shared currency.

Furthermore, the fact that the gold physical market in Asia has improved markedly from three weeks ago provides us with some comfort that there could be better support for gold going forward. That said, we still don’t expect the physical market to chase the price higher. The buying interest is still weak for this time of the year. the Gold Physical Flow index indicates that the physical market buying strength is still well below levels  seen last year October.

Eco reports today are also likely to show improvement in the Philadelphia Fed manufacturing while leading indicators may also show good picture for the near future. Although the Empire Index disappointed traders last week. Not to be overlooked today will be press conferences, news releases and interviews from the EU Summit, as the EU Ministers love to see their names in print. This alone might cause chaos in the markets.

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