The precious metal market has consolidated last weeks gains in the past few days, mostly trading in a range between USD $1310oz and USD $1330oz. Silver has also stabilised, trading in a relatively narrow range either side of USD $21oz

Up about 9% for the year, the rebound in gold prices has been pleasing for all, though local investors have been held back a bit with the largely unexpected rally in the AUD.

ANZs latest weekly report, which looks at four areas when putting together their shorter term projections is still mildly bearish, with physical demand in Asia still subdued.

Whilst the recent strength in the sector has been pleasing, and momentum is with the bulls right now, it bears repeating that it’s still too early to say that we’ve turned a decisive corner, and that “the bottom” is in.

They also noted that the Shanghai premium to the spot price has moved into negative territory in the past few days, and that market sentiment was closer to neutral now, after last weeks rally caught a lot of shorts off guard, leading to burst of short covering.

On the plus side, weaker than expected US economic data (more on that below) is obviously supporting the metals market, but reduced purchases out of Asia, and renewed concern over Chinese commodity backed financing are also making some bulls nervous.

The lack of follow through, and the inability of gold to break through USD $1330 per ounce is also serving as a warning sign, with Japanese trading house Mitsui noting that;

“Gold stopped at the weekly trend line resistance line last Friday. (There’s been) four touches on this [downwards] trend line, starting from Oct. 2012.A close this week above $1330 would favour [a] bullish outcome."

As we publish this today, we’re just over USD $10oz away from that mark, with the gold price sitting at USD $1318oz

With a relatively data light end to the week, its hard to see what would give gold that push over the next 24 hours, so we expect to see the bulls and bears battle it out again next week.

US GDP and Economic Update

Durable goods figures were released Wednesday night Australian time, showing a 1% fall in durable goods orders for May, a far worse result than analysts, who thought the number would come in flat, expected.

Not that the market really cared, but the bigger news was in the US first quarter GDP revision, which came in at -2.9%, a major downward revision from the -1% it had been previously recorded at.

For those of you who’d like to read a short blog on the report, Macrobusiness had a good piece, including commentary from both Morgan Stanley and Goldman Sachs, which you can access here

As per the Goldmans report, the two largest contributing factors primarily responsible for the downgraded number were healthcare spending, which subtracted 1.2% relative to the previous estimate, while net exports subtracted 0.6%.

In many ways, this highlights all that is wrong with the concept of using GDP as a measure of economic health or prosperity. Alongside the good old Supply and Demand graph, GDP = C+I+G+(X-M) where I = S is taught on Day 1 Lesson 1 of just about every economics class room around the country.

Investopedia has a good brief definition of this here

But really, does rising GDP in and of itself mean we are better off. After all, GDP is simply a measure of activity. Pay a man $10 to dig a hole, and another man $10 to fill it in and GDP grows, but anyone with half a brain knows you’ve just blown $20 and gone nowhere.

The latest US GDP result was a perfect reminder of this, for as we stated, the major contributing factor to the downgrade was the huge negative revision to healthcare spending.

Now maybe I’m missing something, but to me the less society needs to spend on healthcare the better, leaving us with more money and resources to spend elsewhere, or even to put away so it can be spent or invested in the future.

Moving forward, analysts and economists expecting a quick and impressive bounce back in US GDP growth in Q2 are likely to be disappointed, with personal spending growing only 0.2%, which was actually a decline in real terms, and well below expectations.

The disappointing print has already led to a number of Q2 GDP growth downgrades, with Goldmans, Action Economics, Bank of Tokyo Mistubishi, Barclays and TD Ameritrade all downgrading forecasts. Action Economics stated;

“Today's U.S. reports included an expected 0.4% personal income rise in May, but with a surprisingly weak spending trajectory through April and May that followed huge downward Q1 revisions revealed in yesterday's GDP report to leave a substantial downgrade in our growth estimates for Q2. We now expect a 2.5% (was 3.0%) real GDP growth rate in Q2 with an anemic 1.5% (was 2.7%) clip for real consumption as consumer caution has apparently increased”.

You can see what all the above institutions had to say via this article on Zero Hedge

The Incrementum Gold Report

Undoubtedly the best gold report or update for the week came from Incrementum AG, and our good friend Ronald Stoeferle, who just published their seventh annual ‘in Gold we Trust’ report.

It’s a treasure trove of quality information (though you’ll need an hour to read it), and you can access the full report here.

Personally I really enjoyed section 2 part C on the reasons for the correction in the gold price, section 4 on the consequences of global zero interest rate policy, and section 14 covering technical analysis.

Suffice to say that I myself, alongside the team here at ABC Bullion agree with the conclusions, namely that its never been more important to diversify and protect your wealth with physical bullion, and that the pullback in prices we’ve experienced in the past 12-24 months represents a great buying opportunity.

We hope you enjoy the report.

End of Financial Year

We are only a couple of days away from the end of the Financial Year. With that in mind, next month, you should receive your annual superannuation statements, and your employer will be upping your contributions to 9.5% of your salary.

As such, this short video, which just appeared in the Australian Financial Review, is worth having a look at. If nothing else, make sure you check what kind of fees you are paying in your Superannuation as there are a lot of managers out there charging very high fees. Make sure you're getting value for money

The video is viewable by clicking here

Until Next Week

Disclaimer

This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. Any prices, quotes or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.