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September 2016 – Review

Gold Jumps on August US Jobs Data

In early September, gold prices rose to an early high after US jobs data, in particular hiring of new employees, in August was weaker than expected. This undermined the case for the Federal Reserve to raise interest rates in the coming months.

Gold for December delivery was settled up 0.7% at $1,326.70 a troy ounce on the Comex division of the New York Mercantile Exchange, hitting the highest level since Aug. 26.

According to the National Bureau of Labour Statistics, the U.S. economy added 151,000 jobs in August, falling short of analyst estimates for 180,000. The weak data provided a boost for gold, which fell this week to its lowest level since Britain voted to leave the European Union on fears that an interest-rate increase could come as early as September. In an August speech, Fed Chairwoman Janet Yellen said the case for a rate increase had strengthened, and the central bank would continue to watch economic data.

September Gold Price Fluctuations

The start of September saw the price of gold dip below £1000/oz and started the month at a low of just £986. The price steadily increased before reaching a high of £1033 towards the end of September, then settling around the £1015/oz level. The fall at the start of the month was reported to be due to investors waiting to see if U.S jobs data could put the Federal Reserve on track to raise interest rates. Some market commentators also began to speculate that the Fed would impose an interest rate hike in December. You can find out more about what factors influence the price of gold in our article here.

Strengthening Demand in India for Gold

Towards the start of September, it was reported that physical gold demand in Asia was beginning to improve as a correction in prices prompted consumers to buy in preparation for the upcoming wedding and festival season, with discounts in India narrowing to the smallest in three months.

The price of gold began to decline by around 1% in early September after the US Federal Reserve Chair Janet Yellen opened speculations to a U.S. interest rate increase. Rises such as this will increase the opportunity cost of holding non-yielding assets such as gold. Although through much of the world, demand was declining, India saw an increase as retail buyers started making small purchases for the upcoming festival of Ganesh which takes place in early September.

Demand for gold is expected to increase in the final quarter as India prepares for festivals such as Diwali and Dussehra as well as for the winter wedding season when buying the metal is considered auspicious.

US Presidential Debate – Gold slips & stocks gain

Towards the end of September, gold slowly edged lower after equity markets bounced back, hinting that investors were beginning to turn to riskier assets in a belief that Democrat Hillary Clinton won the first U.S. presidential debate against Republican Presidential hopeful Donald Trump.

“Leading into this event (presidential debate), positioning in the gold market buying wasn’t aggressive in either direction, it was fairly neutral. I suspect the move subsequent to the first debate is going to be relatively muted,” said ANZ analyst Daniel Hynes. However, the wave of risk-on trading as a consequence of the U.S. Presidential election could weigh on gold prices in the short-term with a possible break to the upside amid heightened volatility, Hynes added.

Analysts said gold could be under pressure if Trump emerged as a winner in the November elections, as the dollar was likely to benefit from the Republican candidate’s stance against low-interest rates. “In the long-term, if Trump becomes U.S. president, its effect on the dollar would be positive… Trump has always criticized the Fed for easing the monetary policy,” said Jiang Shu, chief analyst at Shandong Gold Group.

Markets have tended to see Clinton as the candidate of the status quo, while few are sure what a Trump presidency might mean for U.S. foreign policy, trade and the domestic economy.

Mining – Increasing supply for demand

In mining news, Randgold Resources chief executive Mark Bristow was quoted as saying to journalists in South Africa in September that “To keep the gold industry supplied we need to discover 90 million ounces a year, [But] we are only discovering 10-15 M/oz.”. With its practical uses in electronics and jewellery subsiding into relative insignificance in the context of the vast world of gold as a financial product – which has exploded since the dissolution of the gold fix in 1971 then the emergence of exchange-traded funds early this millennium – producers are now playing catch-up to provide enough metal to back the paper trades. You can read more here.

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