(By Mani) Gold jumped $15 with considerable ease after US Q4 GDP came in at -0.1 percent Wednesday, well shy of market expectations for 1.1 percent, underscoring yet again the yellow metal's heightened sensitivity to negative US data.
The gold market did not factor in negative surprises from the US, both in terms of positioning and sentiment. Gold further benefited from dollar weakness after the Fed gave no indication of any shift in policy, which likely disappointed those who had interpreted the December FOMC meeting minutes as hawkish.
"So, despite US Treasury 10y yields continuing to hold near recent highs, gold is keeping the bulk of its gains for now," UBS strategist Edel Tully wrote in a client note.
Confirmation that the Fed will stay the course in terms of monetary policy is reassuring. However, the intense focus on employment means that this Friday's report remains crucial in forming market expectations on future policy.
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Given the price action, some adjustments to positioning are likely to emerge heading into tomorrow's employment report. Overall, the gold market should resume subdued trading as is typical ahead of a key event.
Open interest on Comex fell by 3.08 million ounces (moz) from Jan. 22 to Jan. 29, likely reflecting long liquidation. The COTR on Friday should provide clarity on the reduction in net speculative length amid the past week's selloff, although the report would exclude the impact of yesterday's bounce.
"For if we get another negative surprise in US data, the resulting push higher in gold would necessarily be amplified by those shorts getting squeezed," Tully said.
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While the resilience in US yields is suppressing gold's upside potential for now, a softer employment number would be enough reason for gold to overlook this detail.
On the physical side, demand remains steady. Interest in China is picking up on Lunar New Year-related appetite. In India, the rupee's strength helped offset the uptick in gold priced in dollars
In the week to Jan 30, gold ETF holdings fell by 0.22moz to 88.11moz. Investors cut their holdings from the SPDR fund by 194koz and the ZKB fund by 53koz. The Source fund was down by 13koz. On the other hand, the ETFS (LSE) fund gained 20koz. Total ETF holdings are down 0.71moz, month-to-date.
In addition, silver ETF holdings slipped 8.48moz to 546.30moz. Investors liquidated their iShares holdings by 7931koz, ZKB holdings by 545koz and ETFS (NYSE) holdings by 99koz. In contrast, they extended their holdings in the ETFS (LSE) fund by 93koz.