Yesterday, gold managed to break its $200-moving day average and is now trading back above $1,700, just, 3 days of continual loses. Gold prices fell below $1,700 on Monday after official data released from China at the annual meeting of the National People's Congress. China's economic growth target has been revised down to 7.5% and this is the first time since 2005 that China is expecting to see growth fall below 8%. This announcement had a heavy impact on the markets and gold prices slipped, as the prospect of a modest slowing in GDP growth could also have negative ramifications for China's appetite for gold jewellery.
In order for Greece to avoid default, investors must agree to incur a loss of up to 75% on their bonds; these private investors include banks, hedge funds and financial institutions. Investors may be forced by the Greek Government to accept these losses regardless in order to avoid a default. However, holding onto these bonds may also prove unwise; the situation is far from resolved and future losses are like to be bigger. Considering the price of gold two years ago was around $1,100 would you rather be holding sovereign debt right now or gold?
Yesterday, a group of 30 banks and funds representing nearly 40% of Greece's EUR206bn of outstanding debt announced they would take part in a Greek debt deal, and this news raised the likelihood that Greece's bond swap would go through and supported equities and the EUR, according to Reuters. This news and oil prices helped support gold prices.
Gold was further supported by a Wall Street Journal report that Federal Reserve officials are considering a new type of bond-buying program designed to subdue inflation worries. Even the mention of such a programme is bullish for gold.
Chinese demand also appears to be recovering, however any further negative news regarding Greece and the European Sovereign Debt is likely to be bearish for gold and declines would follow. Any declines in the gold price present a good opportunity to invest in gold.
It also seems that rising oil prices are becoming a main source of investor anxiety. Oil and gold prices tend to move together, which means any increase in oil prices lends support to gold.
"Although the macro environment is still very gold-supportive, in the nearer term it's going to be the physical market and whether that enables prices to consolidate enough so that investment demand can retake the reins," Barclays Capital analyst Suki Cooper said.
Data released from the FED showed that US Companies increased their hiring in February, supporting hopes that the US Labour market has moved into a higher gear. Investors will be anxious to hear the U.S non-farmers payroll data, due to be released tomorrow; poor data could lead to further expectations of quantitative easing in the US, which would be bullish for gold.
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