Gold Supported On Strong Physical Demand 10-Feb-2014

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Gold extended its broad uptrend in last few days, witnessing good gains after a massive slide in the last year. COMEX Gold futures jumped to two and half month highs of $1280 per ounce in the last week of January and pulled back. However, decent buying support thereafter kept the yellow metal supported. A weak spell in Indian Rupee around the same time meant that the local futures were also kept buoyant though demand in retail markets stayed thin.

Gold has witnessed good bargain buying in the current year after the 28% drop it endured in 2013. The strong physical demand for the metal from advanced countries is a key factor for the market right now. January sales of American Buffalo and American Eagles exploded with newly dated 2014 bullion coins attracting buyers even as the prices edged up. January sales of one-ounce, 22-karat American Eagle gold coins reached 91,500 ounces, the highest monthly total since 209,500 ounces in April 2013. Sales surged 63.3% from December. Chinese gold demand also turned in a strong performance. China returned to the physical gold markets strongly after a weeklong break following Lunar New Year and pushed up the spot price premiums immediately.

The US dollar also gave up some of its recent gains and supported the gold prices. The greenback had hit a two month high against the Euro as the Federal Reserve said it will trim monthly bond buying by $10 billion after deciding in December to reduce purchases by the same amount as the economy improved, helping to end gold’s 12-year bull run.

In a key data release, the non-farm payrolls data showed that the US economy added 113,000 jobs in January, the Labor Department said Friday, falling well below expectation of 185,000 jobs. The pace of job growth over the past three months has slowed to 154,000. That’s down from average 194,000 monthly jobs added throughout 2013. While freezing cold across the country is expected to have played a part in taming these figures, from the asset market perspective, a moderation in labour market could keep the Fed’s tapering under check and keep the liquidity scenario comfortable.

This line of thinking pepped up the US stock markets after non-farm data and pushed up the Gold prices too. The yellow metal edged up towards its recent highs yet again after the data was released. The MCX Gold futures contract for April 2014 edged up towards Rs 29000 per 10 grams amid these upbeat moves in the global markets. The spot gold rates are hovering around Rs 29800-29900 per 10 grams, maintaining their premiums.

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