On global economics, we have witnessed some disproportion in the growth trajectory. US economy has garnered healthy momentum during the second quarter of this year, recovering from the sharp contraction during the prior quarter. However, other economies are exhibiting signs of a slowdown. In Europe, there are escalating concerns about high unemployment and deflationary conditions. Euro zone’s inflation rate during August has dipped to five-year low. This has compelled ECB to remain accommodative for quite some time. On growth side, Russian-Ukrainian conflict has taken a toll on Germany, while France reported economic stagnation during the second quarter. Italian economy contracted for two consecutive quarters, technically entering in to a recession. Meanwhile, UK economy is faring well, with two consecutive quarters registering growth of .8%.
Japanese economy shrank at an annualized 6.8% during the second quarter, influenced by April sales-tax hike. In China, recent macroeconomic variables are showing signs of some stability; however the long term picture still seems uncertain. Markets are worried by the new credit numbers during August, which unexpectedly plunged to its lowest level since 2008. Slowdown in real estate can be attributed to such retrenchment. The latest Chinese PMI numbers also show some moderation in factory activity. However, July trade balance revealed some signs of optimism. Trade surplus surged to a record high of US$47.3bn, helped by unexpected jump in exports and decline in imports.
Geopolitical issues have relegated to the backburner. Notwithstanding the deterioration in European growth scenario, investor fraternity is now paying more heed to the strong flow of US macroeconomic numbers. Investors expect Fed to turn hawkish in the coming months, as improving US economic backdrop will compel the central bank to do the same. The inclination will be tilted towards the riskier assets. In fact, investment and demand in India and China has been reported on a subdued note. There seems to be no persuasive factor to allocate funds to the yellow metal. It is simply a matter of time before we see gold prices eventually sliding towards US$1,200/oz levels.
Source: India Infoline Research