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Summary Demand for gold has come down in the past quarter. Russia and China have recorded huge losses due to their purchases of gold in the past year. But the big question will remain what’s next for the demand for gold as an investment. It will all boil down to the Fed and the timing of raising rates. The price of GLD could come down in the short run, if the NFP report shows a stronger-than-expected gain. Even though the gold market hasn’t done well this year, shares of SPDR Gold Trust (NYSEARCA: GLD ) remained nearly flat in the past month. The Fed’s decision to keep rates unchanged, the rally of the U.S. dollar and the fall in long-term U.S. treasury yields in the past month have dragged the price of GLD in different directions. The demand for gold continues to fall with Russia and China recording huge losses for their gold positions. Nonetheless, demand for gold in ETFs such as GLD will keep falling if the U.S. economy shows signs of a recovery that will bring the Fed closer to raise rates. Russia and China, among the two largest buyers of gold in recent years, have caused these countries to lose around $5.4 billion, according to Bloomberg . Russia has increased its gold reserves by more than 10% since the beginning of year. But the ongoing fall in gold prices may lead these countries to curb down their purchases of gold. In any case, gold consumption continues to fall: According to the Gold Council, total gold demand declined by 12% in Q2 2015, year on year. Most of the drop in demand came from jewelry and bars. ETFs kept selling off gold. Further, GLD’s gold hoards fell by nearly 4% since the beginning of the year. Source of data: Gold Council Looking forward, the main event of the week will be the release of the non-farm payrolls report. In the past, this report (the difference between NFP jobs gains and market expectations) tended to move the price of GLD, as presented in the table below. (click to enlarge) Source of data: U.S. Bureau of Labor Statistics and Google finance Last month, the employment report presented a 173,000 gain in jobs, which was below market expectations. And still GLD prices slightly declined. This time, the market estimates a gain of 202,000 jobs. If the report were to present a greater-than-expected gain in jobs, this could result in fall in GLD prices. The report will be among the last three for the year. And they could bring the Fed closer towards raising rates in December. If the report presents another gain of below 200,000 in jobs and annual growth in wages – which is also a concern for the Fed – remains in the 1.9%-2.3% range, as it did in the past year, the odds of raising rates will keep falling. For now, the implied probabilities for a rate hike in October remain very low at 11%; for December the probabilities are only 35%. So the market remains unconvinced about the Fed’s intent to raise rates, despite the recent speech Yellen gave, in which she stated again that she and her colleagues at the FOMC expected to see a rate hike this year. The gold market remains stagnant, as the market isn’t convinced what’s up ahead for the Fed’s policy. The U.S. dollar’s recovery, which, in part, relates to the grim global economic outlook, is keeping down the price of GLD. But, as the Fed delays its rate hike, the gold market stays put for now. If we were to see stronger-than-expected jobs report, however, the tides could turn and the odds of a rate hike could rise, which may fuel additional selloff in gold. For more, please see” GLD Continues to lose its appeal ” Scalper1 News
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