© Nik Kalsi
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China and the US present two different underlining fundamental influences on gold price. Firstly I agree that the market should remain cautious ahead of upcoming US data, especially the March and April FOMC Meetings and Non-Farm Payroll data releases over the next few months. Non-Farm Payrolls increased by 295,000 in February, which was up from the 257,000 in January.
This marked the 12th consecutive month the economy added more than 200,000 jobs – the best streak since 1995. In the past year, Non-Farm Payrolls are up almost 3.3 million at an average pace of 275,000 per month. Alongside this, the unemployment rate has fallen to 5.5%, the lowest level since May 2008.
This reinforces speculation that the Federal Reserve is now likely to drop the reference to patience on the timing of a rate hike at its next policy meeting in March, thus potentially opening the door for a June rate rise. Every time there is any hint or speculation of a rate hike that puts downward pressure on gold prices as we are currently seeing at the moment. Looking ahead, if the US economy continues to improve, then investors will sell gold as their appetite grows for more risk-on assets like US Equities. Based on this, I do expect to see further declines in gold prices, especially around the time of major US data releases.
On the flipside, China has a very different relationship with gold. The yellow metal is considered a symbol of good fortune in Far Eastern culture and China prefers to buy gold, rather than sell. This Chinese New Year was no exception. Official ‘Year of the Ram' – Gold coins sold out days before the Lunar New Year holiday, whilst in the lead-up withdrawals from the Shanghai Gold Exchange grew to over 315 tonnes, exceeding the 300 tonnes of newly-mined gold around the globe during the same period. China, in other words is consuming more gold than the world is producing. However, the US is having a far greater ‘bearish' impact on gold prices. Based on our analysis at The Gold & Silver Club, I expect the bearish trend will continue throughout 2015.
The sharp appreciation of US Dollar and the Euro tumble drove bullion in Euro terms to trade at 1,080 euros per ounce. How can the current European economic struggle affect the price?
With the European Central Bank launching a full blown Quantitative Easing Program, as the news broke back in January, gold priced in Euros hit a 21-month high, leaping above €1,150 per ounce as the Euro sank following the announcement. The ECB's Quantitative Easing Program was much bigger than originally expected. The ECB will buy €60 billion ($69 billion) of debt a month, starting in March 2015 and continuing until September 2016. This, combined with the other uncertainties in Europe, makes gold priced in Euros a very exciting and potentially more profitable market than Gold priced in US Dollars.
In fact, unlike Gold priced in Dollars – Gold in Euros has only suffered a modest decline this year. Despite all the negative sentiment we're currently hearing about bullion prices, Gold in Euros is actually up 11% this year. With the on-going uncertainties surrounding Greece and the Euro zone, in my opinion gold in Euros has far greater upside than downside potential in the long-term.