A week in gold: Rally fades as data reassures

London (Oct 25)  Gold ended the week lower as concerns over the health of the global economy eased a little after better than expected European data.

The metal has rallied strongly as the prospect of early US interest rises has receded, but a number of brokers still see the trend as downwards.

JP Morgan this week reduced its price targets for the metal for this year and further out due to this year’s trend of weak investor demand and less than expected consumer buying.

“Lower inflation prints, reduced inflation expectations, higher US interest rates and most importantly a stronger US dollar are key reasons we believe gold will trade lower in 2015 compared to our previous estimates,” the broker said.

By 2016, the broker also only sees the gold price at $1,200/oz, with US$1,275 (from US$1,296) the target for this year and US$1,220 (from US$1,275) for 2015.

While the broker acknowledged that recent lower inflation numbers had pushed back the timing of the expectation of the timing of the first US rate hike until June next year, the pressure on the metal will remain.

Current data out of Europe may be weak, but JPM economists expect the eurozone to pick up as the ECB moves towards more active management and lower oil prices feed through the economy.

India's Diwali, the festival of lights, was seen as responsible for an uplift in physical gold demand during the country's most significant gold-buying period.

Kieron Hodgson at Charles Stanley said that at least 20% of country's annual sales will be completed during this five-day period, or around 18 tonnes of the yellow metal.

This interest has manifested itself into a more positive outlook by traders, albeit as the global economic outlook has weakened, Hodgson.

One area where physical demand has remained constant has been Russia, with the central bank buyin another 37 tonnes of gold in September.

The Russians has now been net buyers for seven months running and its gold reserves are now up to 1,150 tonnes.

Adding to the country’s gold reserves has been a feature of Vladimir Putin’s stints as Russian president.

It is now officially the world’s fifth largest holder of gold, but could be one place lower as China’s reserves are thought to be understated. Russia is also the number three gold producer.

In early trading on Wall Street, spot gold was trading at about US$1,231, down about US$10 on the week.

Source: ProActiveInvestors.uk