(By Mani) Gold back to winning ways today after giddy price action yesterday when an anticipatory feature that had largely dwindled out by the time President Draghi took to the stage.
Gold rose 2 percent, 34.7 cents, to 1,740 amid weaker-than-expected non-farm payrolls data. The U.S. non-farm payrolls report showed that just 96,000 jobs were added in August after a revised 141,000 increase in July. Economists expected addition of just over 120,000 jobs. Unemployment rate unexpectedly edged down to 8.1 percent from 8.3 percent.
"Gold will not be the only beneficiary of a weak employment number today; the rest of the complex is also poised to enjoy a rally," UBS strategist Edel Tully wrote in a note to clients.
Yesterday, although risk assets rallied, gold participants choose to ignore the fact that the market has a strong confirmation that the ECB stands ready to act in a meaningful way, with the early enthusiasm dampened by relatively better US data. This disappointment brought gold prices back down towards $1700 after stop-hunting took the market to a high of $1713.68 earlier, just shy of initial resistance at $1716.97.
Gold's 20-day rolling correlation with EURUSD currently sits at 0.69, not all that far from the 0.80 high this year. But considering that the new bond buying programme, Draghi referred to yesterday as ‘outright monetary transactions' (OMT) will once again be fully sterilised, the benefits to gold will be limited since this does not involve any balance-sheet expansion, unlike the Fed's outright QE programme.
"The expectation that the euro will regain strength as soon as markets digests the potential for aggressive ECB bond buying will be supportive for gold given that the yellow metal currently enjoys a strong positive relationship with the single currency," Tully said.
In the week to Sept. 6, gold ETF holdings were up 0.35 million ounces (moz) to 83.63moz. Investors extended their holdings in following funds: SPDR fund by 116 thousand ounces (koz), iShares trust by 67koz followed by ETFS (LSE) fund which added 46koz and db Physical Gold Hedged fund by 38koz. In addition, GBS (LSE) fund holdings were up 33koz, db Physical fund by 24koz and Source fund by 15koz. Total gold ETF holdings gained 0.35moz, month-to-date.
In addition, platinum has good upside potential considering the persistent supply risks out of South Africa. A move towards $1650 seems inevitable with supply risks lingering and this journey would be made a lot easier if QE expectations accelerate.
A peace accord was signed between Lonmin and some representatives of striking miners, but this did not include the more militant Association of Mineworkers and Construction Union (AMCU). Workers are encouraged to return to work today or on Monday while wage negotiations continue, but given that not all parties have signed the peace agreement, it is difficult to see how the accord can be very effective at this point.
"The potential for the situation in the South African platinum mining sector to drag on for some time should not be underestimated given the links to politics. With the AMCU looking for higher wages again at Impala, the possibility of another strike or further contagion across the sector is an acute possibility," Tully added.
In the week to Sept. 6, platinum ETF holdings were trimmed by 6.77koz to 1585.67koz, as investors liquidated their holdings in ETFS (NYSE) fund. During the same period, palladium ETF holdings were marginally up 1.42koz to 2052.83koz.