Gold prices again bounced back at the start of this week, on Monday and it continued its rebound on Tuesday on positive cues from Chinese inflation data. Gold had been on a decline last week, following the surge in the US dollar that was backed by signs of strengthening in US economy.

On Monday, the Bullion began its rebound with a slight increase of 1% in the Spot Gold prices that traded at $1,235.49 an ounce. In line with this trend, the U.S. gold futures for August too edged up by $22 to settle at $1,235.49 an ounce. Later, on Tuesday, Gold further extended its rebound as Spot Gold again advanced by 1.2% to reach $1,250.86 an ounce by 0301 GMT. The Comex Gold too had climbed up by $15 to trade at $1,249.40.

Whereas, last week, Gold had been in a downtrend as the Spot Gold had declined by 0.3% to $1,247.90 an ounce by 1537 GMT, on last Thursday. This was also reflected in the Comex gold futures for August that dropped by 0.4% to $1,247.50, on the same day. Later, on Friday, again Gold had continued to post losses as it further declined by 3.1% to settle at $1,212. This was apparently due to a strong rally of greenback that further tamped the Gold prices.

Analyzing the reasons behind last week’s fall we find that the positive US economic data had boosted the US dollar, which consequently dragged down Gold prices. The US non-farm payroll data showed that more jobs had been added last week, which were 30,000 more than the expected level. This signaled at a significant improvement in the US economy. Consequently, this created a strong surge in the US Dollar that decreased the interest in Bullion assets, bringing down gold prices.

However, the Chinese inflation data released this week cast a positive effect on Gold Prices. According to the National Bureau of Statistics (NBS), Chinese consumer price index increased by 2.7% compared to last year. This beat the average expectations of a 2.5% rise as per the Bloomberg survey. This stoked inflation as the prices of food and other commodities soared, making Gold attractive to Chinese buyers as a hedge against this inflation.

Gold had depreciated by around 10% since last month, after Bernanke’s announcement that US economy is on a strong recovery path. This further made Gold attractive, as buyers wanted to snatch up Gold at its current low prices.

However, the ECB has indicated at the possibility of further interest rate cuts. This could further fuel the surge in Dollar against the Euro. The spill-over of this might be a drag on prices of commodities like Gold.

Additionally, the world’s largest Gold Exchange traded Fund—SPDR Gold Trust, reported a sharp fall of 1.56% in its holdings to 946.96 tonnes on Monday, its lowest since February 2009. All of these signal that Bullion might come under renewed pressure from Dollar in the coming days.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.