During the first seven months of this year gold outflows totaled some 670 tonnes with more than 400 tonnes recorded in the second quarter following the spectacular collapse in the price of gold. In April, gold biggest sell-off in 30 years happened.
After breaking the $1,400 and $1,300 limit, the precious metal was going toward $1,200 territory or even $1,100. But then gold rallied 16 percent since reaching a 34-month low of $1,180.50 in June as sales from exchange-traded products slowed and jewelry demand strengthened. So, is gold rout over?
Gold futures rallied to an 11-week high on Friday, after disappointing U.S. new home sales data dampened speculation the Federal Reserve will begin to taper its bond-buying program as early as September. Sales of newly built homes in July plunged more than 13 percent, the most in more than three years. The Commerce Department reported earlier that new home sales in the U.S. tanked 13.4% to 394,000 units in July, far worse than market expectations for a 1.4% decline. Fed policy makers said they are “broadly comfortable” in scaling back debt purchase if the economy strengthens.
The numbers kept expectations going that while the Federal Reserve remains ready to begin scaling back the pace of its $85 billion in monthly asset purchases this year, a start date may come later such as in December as opposed to September. Stimulus tools such as the Fed‘s $85 billion tend to weaken the dollar by driving down interest rates, making gold an attractive hedge. Gold and the dollar tend to trade inversely from one another.
“The Fed minutes have increased expectations that stimulus will be scaled back and that has certainly weighed on gold,” said Lv Jie, an analyst at Cinda Futures Co. “Gold remains well-bid in Asia, which should support prices.”
Gold for December delivery added 0.1 percent to $1,372.70 an ounce by 7:47 a.m. on the Comex in New York. Futures trading volume was 48 percent below the average for the past 100 days for this time of day, data compiled by Bloomberg showed. Gold for immediate delivery in London lost 0.2 percent to $1,373.30.
Twelve analysts surveyed by Bloomberg expect prices to fall this week, eight were bullish and two neutral. That’s the highest proportion of bears since June 21, a week before prices reached a 34-month low. Gold is heading for back-to-back monthly gains for the first time since September after speculators cut bearish bets by 27 percent from a record in July.
“We may have seen the worst in terms of investor liquidation and the gold market is much better balanced now, but we are probably not out of the woods yet,” said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. “We continue to have the Fed-tapering talk. The negative view is still driven by this.”