Gold dollar spot price around $1,350/oz adds to physical buying pain: sources
London (Aug 1) The spot dollar gold price found renewed support Monday, following weaker than expected US second-quarter GDP data released late Friday, adding further pressure to the already dismal physical buying conditions in key consumer hubs including India.
Second quarter US GDP disappointed Friday, rising just 1.2% against expectations of a 2.5% gain.
"By now it must seem like a familiar storyline. Just at a time when evidence was building that the US economy was in a position for the Fed to again contemplate rate hikes, some weak domestic data or a global event quite quickly scuttle those plans," ANZ bank said Monday.
One consultant said he doubted there would be another interest rate increase, no matter how modest, before 2017.
This has been baulked at by traders and bankers alike.
"If the world isn't ready for another 0.25 or 0.5 basis point rise, then we really are in a bad place," said one banker.
In a research note published Monday morning, Commerzbank agreed that weak US economic data provided impetus for gold.
"The US economy defied expectations, failing to gain ground in the second quarter, and growth remained as weak as in the first quarter. Based on Fed Fund Futures, the likelihood of the US central bank (Federal Reserve) raising interest rates this year has consequently fallen to just over a third," the German bank said.
Before last week's FOMC meeting the figure was still around 50%.
Looking at investment, Exchange Traded Fund inventories rose 55 mt in July. But that compared to almost 110 mt in June.
Since the beginning of the year, inflows have reached 546 mt, according to Commerzbank data.
"Conversely, speculative financial investors are continuing to steer clear of gold. According to CFTC statistics, they scaled back their net long positions for the third successive week in the week to 26 July, to 247,400 contracts. However, in absolute terms, these remain at a very high level," the bank added.
One senior fund manager recently told S&P Global Platts the current imbalance between physical and futures is "the widest I've ever seen."
Sources in India reported a $40/oz discount for official physical purchases in the world's number two consuming nation Monday.
There was some hopeful sentiment, as heavy monsoon rain fell in Mumbai, a banker in the city said.
Gold is a pseudo currency in India, especially in rural areas where bank accounts are scarce.
Good rain could mean a decent harvest and result in renewed physical gold buying later in August and headed into September, sources said.
"Fingers-crossed," said a broker in Delhi.
On Friday, the Platts' India 995 gold assessment came in at minus $40/oz. At points last month, it was as deep as minus $65/oz.
But a second broker in Delhi said with no demand at these levels, the discount was irrelevant.
One banker said that for the past five-months there has been zero physical activity at the wholesale level.
But a jeweler in Delhi said retail conditions aren't as bad as some suggest. "There are pockets of business," the jeweler said.
Bart Melek, head of commodity strategy as Canada's TD Securities, said: "Gold specs pulled another nearly 20,000 lots of longs off the table, but also took substantial futures-only short bets away. [The] consolidation was more profit-taking minded and little interest in getting short this market."
"With negative global yields and many getting too bulled up on possible Fed hikes this year, gold was set for a bounce off support. Longs should return in next week's report," he added.
The London Bullion Market Association Gold Price settled Monday morning at $1,348.85/oz from $1,342/oz Friday afternoon.
Source: S&P Global