Gold Monthly Update – July 2012: Economy Whines, Yellow Metal still shines

Gold garnered substantial gains at the end of this month, with prices managing to sustain above the psychological levels of US$1,600/ounce.

January 01, 1970 5:30 IST | India Infoline News Service

Gold garnered substantial gains at the end of this month, with prices managing to sustain above the psychological levels of US$1,600/ounce. The upside in prices has been aided by the renewed safe haven appetite for gold amid poor economic landscape. Deteriorating economic situation on the both sides of Atlantic has escalated expectations of further quantitative easing by U.S and Europe. In Europe, Spain debt concerns remain in focus, with two Spanish regions resorting for more central assistance and speculation is rife that more states will follow them. Such scenario escalated concerns that the nation may resort for a bailout, as the country is literally frozen out of credit markets, with 10-year bond yields moving as high as 7.5%. However, the yellow metal derived strength from the ECB supremo Mario Draghi statement that the apex body will do whatever it takes to preserve the euro. ECB also indicated that it is ready to resume purchases of Spanish and Italian sovereign bonds, as a measure to reduce the borrowing costs and ensure the survival of the euro.

In US, economic growth slowed in the second quarter as consumers spent at their slowest pace in a year. The nation’s GDP growth for the second quarter slowed to 1.5%, as compared with the growth number of 2% during the prior month. In addition, U.S Federal Reserve Chairman Bernanke offered a gloomy view of the economy's prospects, but provided few clues on the fresh round of monetary easing measures. Bernanke stated that the pace of the US economic recovery has been unstable, adding that growth is slowing, largely impacted by the European crisis and the prospect of fiscal tightening in the US. He also referred that developments in the labour markets remain frustratingly slow.

On currency front, Euro witnessed extreme volatility, significantly impacted by the looming debt crisis in the region. Euro registered a high of 1.267 and a low of 1.204 during this month and is now trading at 1.226. Similarly, US dollar index rallied higher on account of flight of capital to safe haven assets. US dollar index registered a high of 84.24 and low of 81.69 and is now trading at 83.

Although gold prices have made impressive headway over the past few days, the yellow metal still faces a stiff resistance at US$1,630-1,640/ounce. Over the past few months, gold prices have ricocheted back from these resistance levels couple of times and moved back in the range of US$1,550-1,600/ounce range. Gold bulls would require concrete impetus in regard with monetary easing from U.S and Europe in order to breach these levels and register substantial upside. In this regard, market participants will keep an eye on the U.S. Federal Reserve's policy meeting this week in order to assess whether the central bank will launch another round of quantitative easing. In addition, ECB policy meeting will also attract eyeballs. Investors will also be focused on the US non-farm employment numbers, wherein the economy is estimated to have added 110,000 jobs during July.

Gold Snapshot
  Jul-12 Jun-12 mom (%) Jul-11 yoy (%) YTD (%) Avg'12 Avg'11
*Price (US$/ounce)                
Spot Gold 1,621 1,597 1 1,628 (0) 4 1,643 1,573
COMEX Gold 1,621 1,604 1 1,628 (0) 3 1,644 1,572
MCX Gold 29,783 29,665 0 23,166 29 9 28,676 23,995
US Dollar Index 83 82 1 74 12 3 81 77
Spot INR 55.4 55.6 (0) 44.2 25 4 52.7 46.7
 Source: Bloomberg, India Infoline Research  
* Prices as on 30
th July, 2012

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