Those who trade gold pushed the price of the precious metal to its highest level in two weeks on Feb. 10, and the demand of Chinese buyers was a major factor that was cited as helping the commodity enjoy this gain.
Some market experts also noted the lackluster state of the recent jobs reports released by the U.S. Department of Labor. The data issued by this government agency indicated that in January, American employers created a net 113,000 positions. These figures were released after December failed to create a significant number of jobs in the nation.
The recent support that Chinese consumers have provided to the gold market after returning from the New Year holiday may be part of a broader trend, according to Bloomberg. Data provided by the China Gold Association revealed that last year, there was a 41 percent spike in the nation’s demand for the precious metal.
China’s demand for gold strong in 2013
The CGA stated that in 2013, there was a 57 percent surge in the total weight of gold bars purchased by the nation’s consumers, The Wall Street Journal reported. During the year, people in China bought 375.7 tons worth of these items.
“This was a large magnitude of increase for gold bars, and it might show the Chinese people’s strong desire for gold as an investment,” Hu Yanyan, gold analyst for Everbright Futures, told the news source.
In addition, consumers in the world’s second-largest economy purchased 716.5 tons worth of gold jewelry, which was 43 percent more than in 2012, according to the media outlet. These people continued the trend of more robust gold consumption when they recently stepped up their purchases after returning from the recent holiday, which lasted a week, Bloomberg reported.
This resurgence was noted by Abhishek Chinchalkar, who works for Mumbai-based AnandRathi Commodities Ltd. As an analyst, told the news source. He said that these individuals helped ensure that the price of gold would not decline below a certain level. As the precious metal has had low values lately, many analysts have predicted that many Chinese consumers will have a strong desire for the commodity.
“The U.S. dollar is likely to rise more this year, which means that gold prices will keep falling,” Ms. Hu, who works for Everbright, told the news source.
While the demand of people in China is one major factor that market experts have cited as helping gold prices to rise to a two-week high on Feb. 10, the future testimony of Janet Yellen, chair of the Federal Reserve, was noted as contributing to this appreciation. Chinchalkar told Bloomberg that the statements made by her when meeting with Washington lawmakers starting on Feb. 11 would be crucial.
Yellen testimony could be key
The guidance that Yellen gives to Congress could provide crucial insight on her view of quantitative easing. She persistently supported the use of robust stimulus in the past. These bond purchases have repeatedly been identified as having an impact on the price of gold, so her approach to this form of stimulus could have a substantial impact.
Yellen assumed her role earlier this month, and before she was sworn in, the Federal Open Market Committee announced specific plans to taper after two separate meetings. The central bank had been purchasing $85 billion of debt-based securities every month, but the Fed announced in December that in the following month, this figure would be lowered to $75 billion per month. In February, the pace was lowered to $65 billion per month.
The Fed has increased its balance sheet to more than $4 trillion over the last several years. These bond purchases, and also those made by central banks across the world, have contributed significantly to the size of the global money supply. Amid this robust stimulus, some have voiced concerns about potential inflationary pressures.
These worries have driven many global market participants to seek out gold as a hedge against the risk that the price level will increase significantly. As a result, the pace at which the Fed buys bonds going forward could have an impact on the inflation concerns of global market participants.
Economic data and tapering
Some market experts have predicted that the Fed will not be able to rapidly dial down its bond purchases due to the weak nature of the economic data provided for the U.S., according to BullionVault. For example, major financial services firm UBS has stated that the global asset market values cannot be priced as they would if tapering was anticipated to happen at a more accelerated rate, due to the lackluster reports recently provided by the Labor Department.
Lowering these bond purchases too quickly could result in the removal of key support that has been helping the labor market mend. However, using a more conservative timeline for lowering this stimulus could motivate those who trade gold to sell it.
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