Gold after initial losses due to Dollar strength rallied up on mixed economic data and strong physical demand from India and China. Later, the FOMC minutes vaguely hinted at a possible scale back of monetary policy that caused as setback for Gold prices.

On Wednesday last week, Gold fell by 0.1% to lose 1.38 points and settled down at $ 1,320.25. Spot Silver too dipped by 0.21% to $ 21.32, whereas, Spot platinum increased marginally by 0.54 % to $ 1,490.00, with Spot palladium falling by 0.67 % to $ 734.35.

Later on Friday weekend, Spot gold advanced to trade at $1366.35 an ounce from Thursday’s $1365.36 per ounce. Gold futures for December delivery too climbed by 0.7 % to close at $1,371.00 an ounce in NYMEX.  Silver made giant strides as it soared to $23.217 an ounce, its highest level since May 15 this year. Silver prices posted a 14% gain for the week, its highest since September 2008.

The reason for the slump on Wednesday can be attributed to the US commerce department report on retails sales data. The US retails sales rose by 0.2% in July. Even though this was slightly below or in line with the expectations of a 0.3% increase, markets felt that it strengthened the case for the Fed to taper its monetary policy.  This was reflected in Atlanta Fed President Dennis Lockhart’s comments that Fed could be reducing its bond purchase by September, even though the inflation remains below the target.

But, later on the weekend bullion got a reprieve as the physical demand came to its rescue. According to the World Gold Council the consumers demand for physical Gold jumped by 376.5 metric tons to 1,083.2 tons in the second quarter. Also, the demand from other parts of the world like increased as Turkey’s Gold imports surged by 80% in 2012. The Labor concerns in South Africa, one of the largest producers of Gold too drove up the Gold prices.

Starting this week on Monday Gold gained by 0.58% to $ 1,375.32 and Silver moved up by 0.04% to $ 22.07. But later on Thursday, Gold cut back its gains as it declined by 0.52% to $ 1,362.87. Mirroring this trend, Silver too fell by 0.83% to trade at $22.86.

Bullion advanced on Monday this week due to increase in the inflow of the Holdings of SPDR Gold Trust, as it rose to 915.32 tons from 912.92 tons gaining by 0.4%.  This is its highest increase since November 2012. Moreover, the UK house prices for August reported a drop of 1.8% for the first time in 8 months. This boosted Bullion’s appeal as a safe haven investment.

However, the FOMC minutes released for July vaguely hinted at scaling back its asset purchase in September, though some members of the committee were divided about tapering next month. This caused the US 10 year Treasury yields to jump to 2.92%, making dollar denominated assets attractive, which boosted the US dollar. Consequently, this hurt the gains accumulated by Bullion, creating a huge setback for its momentum.

Moreover, the German economy posted positive economic data which showed that activity of manufacturing and service sectors rose to a seven-month high of 53.4 in August from 52.1 in July. This bolstered the view that the Eurozone is finally fighting its way out of recession and moving into expansion mode.

Thus, all of these factors contributed to the decline in Bullion after it had rallied for a few days. Still, even if the Fed tapers its monetary policy in September, the interest rates are bound to remain near zero, which will reduce the tightening effect on liquidity. So, if there is continued physical demand Bullion has ample wiggle space to attempt a solid rebound.

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