The African Standard bank released its daily commodities analysis and report for September 4. The report focused on analyzing gold physical demand.
Standard Bank Gold Physical Flow Index (GPFI), which tracks Asian physical buying and selling, declined in the recent days as gold prices were above $1,400. Shanghai Gold Exchange (SGI) gold premium declined to be well below the $20 per ounce or more that was held during most of July and August. SGI gold premium was $11 per ounce on Wednesday. The physical gold market price is very sensitive when gold price move rapidly up or down.
The physical gold market is very sensitive to gold price volatility rather than the price of gold itself. Despite the physical demand is weakening, ETF gold liquidation stopped and increased marginally from mid-August till today. Hence, gold price might hold up although the physical demand is waning.
Without a strong physical demand, the sustainability of the upward movement of gold price is in question. Note that U.S. 10-year bond yield will probably move towards 4% over the next 12 months. Therefore, for gold to sustain the upward movement, it has to move above its 200-Day Moving Average to lure momentum buyers entering the gold market again. However, the 200-Day MA is currently at $1,494, which is a long way to go. The geopolitical tension in Syria might add some upward pressure to gold along with oil price.
Still, the seasonal demand might drive gold price higher. The demand started improving in September last year, which might also happen this year. However, this year is different for some reasons. Firstly, the Indian Rupee is weak and gold is near all-time highs in terms of Rupee, which might encourage scrap selling. Secondly, there was a strong buying at lower prices from May to July, and India tightening gold imports through higher duties and import restrains might indicate a much lower demand pick-up than last year.
The South African newspaper, The Business Day, reported that the national Union of Mineworker (NUM) reduced wage in the gold mining sector from 60% to 10%. However, NUM denied these claims while settlement between the mines and NUM have been reported. The miners’ strike in South Africa would affect the price of platinum rather than gold significantly.
Investors await the U.S. job data to be released this Friday. The current monetary policy is closely connected to the U.S. employment. The U.S. dollar index also is slightly stronger. As a result, the bank analysts expect gold to struggle on movements well above the $1,400 level.
COMEX gold future for December delivery settlement was at $1,404.40, DGCX gold future for October delivery was at $1,403.90, CBOT gold for December delivery at $1,411.40 and TOCOM gold for June delivery was at ¥4,493 per gram.
Gold price technical support is at $1,392 then at $1,372 while the technical resistance was at $1,412 and $1,424.