Daily Gold Market Report (2003-06-30)

Gold had a quiet day on Friday, again finding support in the $342-343/ounce region in New York after light trade selling had appeared sporadically in London on Friday morning. Once again the currency markets remain key in determining short-term trades, certainly among the more speculative elements and this has driven the liquidation over the past few days. From a broader perspective, the Asian markets continue to provide physical support – rallies in price tended last week to be concentrated in Asian hours and there was good physical interest again towards the end of the week – but the market is also conscious of the seasonal slow-down in physical offtake in India.
Market factors
The dollar is still showing an upside bias, which is helping to keep short-term expectations for gold muted, although the longer-term view on the US currency remains somewhat more bearish, with a number of houses iterating year-end targets of between $1.20 and $1.30 to the euro. In the short term the markets will be looking to US economic data, with today seeing the release of the June Chicago Purchasing Management Index of manufacturing activity, with an index of 53.0 forecast. The May figure was 52.2.

Meanwhile Friday saw a tax-adjusted increase of 0.4% in US incomes in May, the same as the April level. Set against a background of falling prices, real consumer spending increased by 0.3%, although the personal consumption index was down by 0.1%.

In Germany, Chancellor Gerhard Schroeder yesterday announced wide-ranging income tax cuts, which analysts hope will help to boost local consumption over the rest of the year. The Chancellor has said that the cuts should still allow the German deficit to be contained within EU limits (3% of GDP) and that the cuts will be financed by reductions in subsidies, new borrowing and possibly also from sales of holdings in previous state entities.

Background News
The speculative activity on COMEX in the week to Tuesday June 24th, during which time gold prices had dropped from approximately $362/ounce to $348/ounce, showed good-size long liquidation among the large-scale speculators, along with a small degree of short-covering from them, while the small scale speculators increased their long positions very slightly but added to their shorts. The net impact was a drop in the combined net long position to 340 tonnes from 388 tonnes.

The Malaysian Deputy Finance Minister Dr. Shafie Mohd Salej has said that his government is in early discussions with Iran over the possible use of the gold dinar as a method of settling trade transactions under the countries’ bilateral trade agreement.