Gold market looks to Federal Reserve guidance next week, says Sharps Pixley

Gold broker Sharps Pixley says the gold market is awaiting data next week from the US, including the latest Federal Reserve interest rate decision, and CPI numbers.

Slowing Growth Outside of the US

The growth in the US is holding up better than that in the rest of the world, and its stock market is outperforming this month. The latest US weekly jobless claims dropped 12,000 to 334,000 while the May advance retail sales rose 0.6% compared to the expected 0.4%. The World Bank lowered this year’s world GDP growth forecast from 2.4% in January to 2.2%. In particular, it reduced its growth expectations in China and Brazil, expected the Euro economies to contract 0.6%, and revised up the growth in the US and Japan. As the market increasingly expects the Fed to reduce its bond purchases, bond yields, especially in the emerging countries, have backed up, sending investors’ money out of global bonds.

Investors Feeling Bearish Again

Based on the Bloomberg survey, the number of bearish gold traders has increased the most since a month ago. The gold-backed ETP holdings fell to a two-year low of 2,117.96 metric tons on Thursday. The Chinese may lend support to the physical gold market after their three-day holiday. Import demand in India has dropped significantly in June after the government raised the import duty from 6% to 8% on 5 June and imposed further shipments restrictions. Gold prices will be under further pressure if investors continue to flee from the gold-backed ETPs without a big enough offset by the physical demand.

What to Watch

Next week, the important events to watch will include the US May CPI and housing starts on 18 June, the US FOMC rate decision and the Fed’s press conference on 19 June, the Eurogroup meeting on 20 June as well as the June “flash” PMI index for China, the E17 and the US on the same day.

 

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