UNITED STATES August 25 2014 4:35 PM
NEW YORK (Scrap Register): Gold prices dropped to two-month lows, remaining below the $1300 an ounce mark last week following stronger-than-expected data from the US and hawkish comments from the Fed. Dollar strength and firmer equity markets have added to gold’s woes as underlying demand remains tepid.
Barclays reiterates their view that gold is likely to find limited support on the downside in the absence of firm physical demand coupled with muted investor appetite.
In the US, key data released last week were stronger than expected, ranging from existing home sales, the Philly Fed manufacturing index, the Conference Board’s index of leading indicators, to the weekly unemployment claims. Barclays expects the August employment report (due September 5) to show solid employment growth of 200k and the unemployment rate to decline 0.1%, to 6.1%.
The July FOMC minutes, released last week, suggested that faster convergence to policy goals could lead to earlier rate hikes, in turn, gold faced additional downward pressure, breaching $1300/oz. Barclays economists note the minutes echoed the reduction in downside inflation risks expressed in the statement and added that job gains may bring forward policy tightening.
In China, a sharper-than-expected correction in the HSBC ‘flash’ PMI helped push the dollar index to renewed highs. The PMI fell sharply to 50.3 in August, weaker than Barclays economists’ below consensus forecast of 51.3. They think the PMI underlines the fragility of China’s recovery, and although they still expect 8.0% q/q saar growth in H2, they base this on Barclays' continued expectation for further monetary easing in the form of two policy rate cuts.