The African Standard bank released its daily commodities analysis and report for October 4th. The report analyzed gold price movement during the Chinese holiday and the U.S. government shutdown.
The U.S. bond yields stabilized recently after being volatile since May. This stabilization should ease the pressure on gold ETF liquidation for a bit. However, it might continue with relatively slower pace.
As for economic data, the ADP employment data released earlier Yesterday came lower than expected, which provided gold some support. Moreover, the ISM manufacturing index of New York fell from 60.5 in August to 53.6, which favored gold.
With China on holiday, gold physical demand from Asia is lower, and most of the price action takes place during the U.S. trading hours. The bank analyst expects gold price to drift below $1,300 on the lack of strong physical demand. Although the Gold Physical Flow Index (GPFI) indicates an improvement in the physical demand, the bank analysts still believe that gold is more vulnerable than a week ago due to the absence of China. Next week might bring the price of gold lower.
On the other side of the ocean, the US employment data that should be released on Friday will not be released due to the U.S. government funding gap. However, whether it is released or not, it won’t change the long term outlook for gold. On the short term outlook, the absence of a catalyst to drive the prices higher make the possibility of gold price to weaken is more likely.
Risk aversion has risen following the U.S. government shutdown. The VIX volatility index has risen from 13% at the beginning of this week to 17.67% yesterday. Although there is no strong correlation between gold price and VIX, it shows that the overall market worries still remain. However, if there is no catalyst to drive the price of gold further, such as physical demand, gold price might be seen lower.
The next date the market is waiting for is October 17. The U.S. government should start shutting down some services in an orderly fashion. The U.S. Treasury already said they are able to fund spending till October 17, after that they will more likely to hit the debt ceiling and wouldn’t be able to borrow further. Gold failed to see gains from this uncertainty despite the U.S. dollar weakening. That’s certainly not a bullish signal for gold.
Gold price support level are seen at $1,305 then at $1,289 while resistance at $1,333 and $1,343.
COMEX gold future settlement was at $1,312.80, DGCX gold future was at $1,311.20, CBOT gold at $1,320.40 and TOCOM gold was at ¥4,122 per gram.