Dollar Slides, Gold Gains, and Chinese Demand

Early in the week gold hovered around the $1,280 per ounce mark. News of the dollar’s decline helped gold rise above $1,310 per ounce on Thursday. Investors are still curious as to when the Federal Reserve will begin tapering the economic stimulus.

A recent article by Bloomberg addresses the overall situation. “The weaker dollar is helping gold,” Sterling Smith, a Chicago-based commodity futures specialist at Citigroup Inc., said in a telephone interview. “The market will continue to remain nervous until we get some clarity about the tapering timetable from the Fed,” he said.

The dollar’s seven-week low Thursday has helped boost the price of gold, but investors are still curious to know exactly when the Federal Reserve will act. Labor data reports come in monthly which gives some hints as to when the Fed will act, but nothing is set in stone and conclusions are generally surrounded by speculation.

Physical Demand and China

India, traditionally seen as the world’s largest bullion consumer, may be overtaken by China. Gold premiums in India have doubled recently and now jewelers are longing for earlier days. Meanwhile, China has been quite busy this year. The World Gold Council’s managing director for investment, Marcus Grubb, says, “China will probably be the world’s biggest gold consumer this year for the first time on an annual basis,” Grubb said. “That will be driven by both jewelry and investment demand. Jewelry will be the biggest overall demand segment, but investment will grow fastest.”

Clearly this is good news for gold as the fall in gold demand from India will be offset by China’s needs. Physical demand also remains steady in the U.S. even though small outflows of ETFs persist. It’s hard to keep a finger on the pulse of the overall demand throughout the world, but at least for now there seems to be a steady balance.

September and the Federal Reserve

All eyes will be on the Fed next month. There has been much talk about the economic stimulus beginning to taper in September. It remains to be seen if this is just “talk” or real action will be taken. Again, experts will look to new economic and jobs data moving into the new month for clues as to what direction the Federal Reserve will take.

 

Resources: Bloomberg, Reuters, WGC