Gold prices under pressure as China hopes fade

Tuesday, August 04, 2015

Spot gold prices failed to hold on to Friday’s tentative gains as prices traded 0.9% lower at the start of the week on sluggish investment demand and Chinese economic concerns. The yellow metal experienced downward pressure throughout much of the session, opening just above $1,096/oz as attempts to converge on $1,100/oz remained unsuccessful. Selling pressure eventually saw futures close just below $1,087/oz as investors mulled over the weaker Chinese PMI number released over the weekend. Adding to the demand concerns from a slowing Chinese economy it seems investment demand in the west is also on the ropes with total holdings in the SPDR Gold Trust ETF falling to their lowest level since September 2008 to 672.7 tonnes as speculators fall out of favour with the yellow metal. Trading during the overnight session and early this morning has seen the precious metal pull back further towards $1,080/oz before recovering back towards $1,088.

The rout in emerging market currencies extended on Monday as the rouble continued to feel the pressure, trading back towards levels last seen in late February/early March. The commodity currency has come under increasing strain since as and over the past two months as crude oil prices extended moves on the downside. The rouble lost 4.2% against the dollar on Monday as it weakened to 63.5504, bringing quarter to date losses to almost 15% so far, while losses for the year-to-date hold at a more conservative 4.6% owing to the volatility and weakness seen at the start of the year as tensions between Russia and Ukraine prompted Western powers to impose further sanctions. Activity this morning has seen the rouble hold off from any further weakness against the dollar, trading back towards 63.1000 early on as resistance holds around 63.8000-64.2000. However, any continued weakness could see the rouble revisit January highs around 70.000 and above as the outlook for a US rates rise and weak oil prices continue to batter the commodity currency.

Front month Brent futures displayed significant selling pressure yesterday as the 3.9% decline saw the global benchmark trade back below $50/bbl for the first time since January as the bear market continued. Comments from Iran’s oil minister Bijan Namdar Zanganeh, who stated that Iran could boost its oil output in one week after the international sanctions are lifted contributed to the sell-off in crude oil yesterday as market participants expressed their surprise at just how quickly Iranian production could return to pre-crisis levels. There seems to be no easing of the pressure this morning as front month Brent futures hold below $50/bbl early on and with a lacklustre demand outlook we could see bearish prices persist for the coming weeks.

SPDR Gold Trust holdings continue to decline

GDTRGOLD Index SPDR Gold Trust 2015 08 04 07 46 13

RUB weakens further against USD

RUB Curncy Russian Ruble SPOT 2015 08 04 07 55 28

Events for today

0930

UK

Jul

Markit/ CIPS Construction PMI

1000

EZ

Jun

Producer Prices

1445

US

Jul

ISM Manufacturing PMI

1500

US

Jun

Factory Orders

1500

US

Aug

IBD Sentiment

FN

Sep Coffee (LIFFE) 

OE

Aug  Gasoil (ICE) 

Topics: USD, Gold, PMI, RUB
More from: Kash Kamal