World Gold Council Market Analysis A Bit Misleading

Gold continues trading on the weak side as 1218.00 as the new week kicks off. Silver is not far behind at 17.485 trading in the green at the end of the week. The precious metals diverged on Friday after US data signaled a strong economic recovery. Silver was well supported on its base metal side. While the third precious metal platinum took a pill falling to a 15 month low against the strong US dollar. Gross domestic product rose at a 4.6 percent annualized rate, compared with an earlier estimate of 4.2 percent, government data showed today. The latest figure matched the median forecast in a Bloomberg survey of economists. Traders were expecting a drop in GDP after the OECD earlier in the month reduced its forecast for US growth in 2014. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 2 percent annualized pace. Last week gold touched an eight-month low.

Investor’s interest in precious metals continued to decline this week. Holdings in exchange-traded products backed by platinum are at a four-month low after expanding to a record in July. Gold and silver also fell this week.

The World Gold Council is out pushing its new report that shows increased demand for gold will continue to expand even though the economic crisis and political turmoil is behind saying that gold is no longer just for safe havens. The report fails to mention that most gold buying will be for jewelry as personal consumption of precious metals has been at an all-time low during the financial crisis and that pent up demand for gold in gifts and jewelry will come from increased incomes and consumer confidence, but this increase in purchases will be short term. The new analysis,” says the Council, presenting Professor Persaud’s findings, “shows that a 1% increase in GDP lifted jewellery consumption by an average of 5%, all else equal.” Because “gold jewelry is what economists refer to as a ‘superior’ good,” says Persaud, “where demand increases proportionally more than income.” The same 5:1 relationship applies to electronics demand compared to GDP growth, too.

 Although gold investment demand is “much smaller” than jewelry buying, however, “shifts in investment demand can be large and play a critical swing role in the market,” Persaud cautions. Gold investment, agrees the World Gold Council’s commentary, “can exert strong pressure on prices over the short (and potentially medium) term.

Copper gained on speculation that demand will improve after a report showed the economy expanded at the fastest rate since 2011 in the U.S., the world’s second-biggest consumer of the metal. Copper remains well below its 2014 trading range at $3.035 as Chinese lackluster data and the lack of economic stimulus from the PBOC weighs heavily on the commodities markets. The metal capped a third straight weekly decline as the US dollar, on pace for the biggest quarterly gain since 2008, erodes the appeal of commodities as alternative assets.This week is marked by significant Chinese data and the end of September and the beginning of the new month all taking place within a short time span. It is unusual for the month to split on a Wednesday so there will be significant data along with traders closing out the month and quarterly profits.