GOLD PRICES traded at $1128.37 per ounce on Friday midday in London, showing a weekly drop after 3 weeks of gains as Asian shares rallied on “upbeat” U.S. economic growth data following a chaotic week starting with the Chinese Black Monday.
The American, Chinese and Japanese main stock markets closed up while European equities dropped, erasing weekly gains on Friday morning.
The US Dollar versus the Euro rose slightly to $1.12760 from Thursday despite a weekly fall, which halved a previous one-week hike.
The 10-year US Treasury bond yields reached 2.15% Friday following an early week level under 2%, an almost 4-month low.
The crude oil US contracts rose to a 2-week high at $42.87 per barrel and Brent also showed a weekly hike.
The so-called Black Monday in China created a shockwave across global markets denting investors’ confidence. The plunge didn’t last as the benchmarks Shanghai Composite and Shenzhen Composite closed up 4.8% and 5.4% respectively on Friday. Chinese equities still ended the week almost 8% lower.
Positive economic data from the US, with better than expected GDP figures released on Thursday, calmed sentiment as Asian markets saw a second day of rally on Friday.
Gold Prices fell during the whole week after Black Monday and the ensuing chaos in the Asian and Western stocks markets to reach a one-week low at $1118.17 per ounce on Wednesday. Prices were almost 1.16% up Friday morning from this low but overall on the week were down $29. This weekly 2.5% drop was the fastest since week commencing July 20th.
“We think [gold] prices will likely head lower over the next few days,” said Edward Meir from INTL FCStone in a note on Friday, “since gold is not only selling off on bearish news, but more importantly, it does not seem to be pushing higher on bullish news,” such as when stocks plunge.
“The notion that gold always rises when the equity market falls is false,” said Charlie Bilello, the director of research at Pension Partners LLC, managing $200 million.
New data showed that the U.S. economy expanded at a rate of 3.7% in Q2. The upward revision of the data prompted expectations of a rate rise happening this year despite the market turmoil. Investors were considering the sustainability of the US growth and interest rate hike by the Fed in September.
“A huge portion of this increase in U.S. GDP numbers came from a build up in inventories,” told an analyst at Phillip Futures Pte in Singapore, “which probably explains why gold prices managed to hold.”
Holding above the $1100 mark suggests “the market is pricing in the probability that the September rate hike won’t materialize,” added the analyst, concluding that the hike could happen in December.
The precious metals consultancy Metals Focus said in a note published on Tuesday that it saw a Chinese hard landing avoided and Fed rate hike still possible late in the year.
“Once the market shifts attention back to the Fed, downward pressure is projected to build on the yellow metal again in the final third of the year,” added Metals Focus
The bottom of the market is in sight and investor sentiment [towards Gold] should recover in 2016, concluded the consultancy group.
The fall in gold prices from a 7-week high failed to spur physical demand in Asia. The Chinese premium above the London international prices for gold main contracts in Shanghai stabilised around $3.5 per ounce since Wednesday.
“There's not much interest on the physical side,” Ronald Leung, a Chief Dealer at Lee Cheong Gold Dealers Ltd in Hong Kong, told Reuters. “The Chinese are still concentrating on the stock market rather than the gold market.”
Meanwhile this week, the Chinese authorities were investigating four securities brokerages as well as employees at its securities regulator, according to the official Xinhua News Agency reported Time.com. A former chairman at China’s largest investment bank CITIC Securities was also being detained.
Over in Europe, EU antitrust regulators were investigating alleged anti-competitive behaviour in precious metals spot trading. National regulators in Germany (Bafin), the UK (FCA) and in Switzerland (FINMA) were also looking into precious metals trading and commodity benchmarks, revealed Reuters.
Silver traded at $14.46 Friday midday extending the gold price drop and seemed set to finish the week about 5.6% down. Silver prices drifted lower this week to touch $14.00 on Wednesday, a low level not reached since the summer of 2009.