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Gold prices were on the rise again today (Wednesday) as the market digests the recent spate of global economic data that could warrant more stimulus measures – and send metals prices soaring.
China reported last Friday that its July consumer price index (CPI) rose to 1.8% from the previous year, representing its lowest jump since January 2010. Industrial production declined to 9.2% from June's 9.5% thanks to slowing growth in heavy industrial production. Retail sales fell to 13.1% from June's 13.7%.
There's more: July exports increased 1% from the previous year, while imports rose 4.7%, exemplifying a weak external demand, but also a slowdown in Chinese investment.
As if this wasn't enough news to fuel a little action in the gold markets, Japan continued the trend on Monday with news that its economic growth in the second quarter had slowed down more than anticipated.
Also triggering stimulus speculation was news out of Europe that the Eurozone's economies contracted in the second quarter. The European Union's statistics office said yesterday (Tuesday) that six countries were in recessions.
"It looks like the gold market will continue to be held up by the sentiment of expected central-bank stimulation," Marex Spectron Group said in a report Tuesday. "The downside risk is limited."
When Will Central Banks Deliver for Gold Prices?
China's central bank, the People's Bank of China, in the last two months has cut interest rates twice. But it didn't give the economy enough of a jumpstart as the country's economic struggles are intertwined with the Eurozone and U.S. sets of problems.
According to Reuters, a senior official at a top Chinese government think-tank said China must step up pro-growth policies over the next three months or risk missing its annual growth target of 7.5%.
Jeffrey Sica, chief investment officer at SICA Wealth Management said to Reuters last week, "Gold is up mainly because of the weak manufacturing numbers inChina, suggesting that there is a pretty strong indication we are going to see more quantitative easing there."
Recent gloomy economic data from China prompted a number of investment banks to cut their 2012 economic growth forecasts for the country, which is on course for its slowest full-year of growth since 1999.
So what's next?
With Europeans taking their annual August holidays and economic reports dwindling in the near-term, investors will likely see a pause in possible activity affecting gold prices.
But calendars have been marked for the annual Fed meeting in Jackson Hole, WY.
The central banker annual symposium will be held from Aug. 31 – Sept. 1. Attendees include an array of who's who in finance from around the world, such as European Central Bank President Mario Draghi. Discussions center about economic issues faced by the U.S. and foreign economies.
Investors must keep their ears open for potential news from the Fed on upcoming quantitative easing, or clues from other global financial chiefs that they will implement stimulus measures.
Dominic Schnider, analyst at UBS Wealth Management, said to Reuters that gold could test the waters in its 200-day moving average of $1,650 an ounce around the time of the Fed's gathering.
Schnider added, "The sentiment (on gold) has gotten better in the past few days with investors focusing on central banks."
Related Articles and News:
- Money Morning:
Gold Prices: Begging for QE3
- The Wall Street Journal:
China Consumer Inflation Slows to 1.8% in July