The gold price has given investors and speculators an interesting ride over the past week, moving down on any indication of dollar strength and back up on dollar weakness.
At the beginning of the week, the yellow metal moved down sharply on a small boost in dollar value and by Thursday had fallen below what many had considered to be a key resistance level of $725 or $726. Some were thus expecting a further decline down to the low $700s, but gold invariably confounds in the short term – even though long term expectations have been fairly well met in recent months since the $608 low at the beginning of the year. So on Thursday, after hitting a 2 week low, it bounced back $18 on signs of renewed dollar weakness. On Friday it consolidated back up to the low $740s, after a shortlived blip back below $730, and stayed above the $740 level until the markets closed. It will be watched with interest next week.
Once again the dollar has been the key to gold price movements. If the US jobs data situation improves as some believe it may and the Fed holds interest rates there could be a little more strength in the dollar yet so volatility could continue, but the US currency still looks week overall even if it made up some lost ground against the Euro over the past week, but was falling back again towards the week end. If the jobs data is poor, on the other hand, and the likelihood for interest rates is thus to be moved down another quarter or half point, we would likely see gold test the $750 level. Economic data will be the key to dollar strength or weakness and gold weakness or strength.
Some talk of gold supply being a factor, but the gold price doesn’t really move on mine supply as so many other factors come into play. Big hunks of gold coming on to the market as with Central Bank sales do move the market downwards, but despite relatively large sales volumes in the final quarter of the latest Central Bank Gold Agreement period which ended a couple of weeks ago on September 26th, the metal price remained strong.
In the event, after predictions early in the year that Central Bank Sales might end the year well below the maximum 500 ton level, the increased volumes from Spain and Switzerland in particular brought the final figures fairly close to the maximum at around 480 tons. Now it remains to be seen what the new Agreement year brings, with Swiss sales likely to continue at a relatively high rate. This is probably built into pricing expectations though and it is the volumes from other countries which may prove to be the most significant.