Gold "setting its sights once again on the psychologically important $1,300" - Wealth Managers

Today's poor retail data is latest signal economy could be spiraling back into recession

"Gold settled higher at $1,283 on Monday as the dollar pared gains amid concerns that weaker-than-expected U.S. retail sales could dampen Federal Reserve plans to taper stimulus,"Reuters reported.

The gold price is "setting its sights once again on the psychologically important $1,300 mark," analysts at Commerzbank said in a note Monday quoted by MarketWatch. In the eurozone, the "debt crisis is still very much an omnipresent factor and could flare up again at any time," they said, pointing out that Fitch Ratings on Friday downgraded France's credit rating. "Gold could thus find itself in higher demand again as an alternative currency."

Meanwhile, the U.S. central bank remains on guard, keeping its record stimulus flowing while watching incoming data."Since (Federal Reserve chief Ben) Bernanke's speech (last Wednesday), there's been more of a question mark as to when the Fed begins tapering stimulus," David Meger of Vision Financial Markets told Bloomberg. "We're back to a data-dependent mentality, and anything that shows a weaker economy is going to be supportive."
Hedge funds returning to gold
Gold also got a boost from new data showing big investors are getting back into gold on Bernanke's vow: "Hedge funds raised bets on higher gold prices for a second week as comments from Federal Reserve Chairman Ben S. Bernanke damped expectations for an imminent tapering of stimulus. Futures rose the most since 2011. Speculators increased their net-long position by 4.1 percent to 35,691 futures and options, U.S. Commodity Futures Trading Commission data for July 9 show."
"Bernanke's comments put some positive feeling back into gold and into all commodities," said Dan Denbow of USAA  in San Antonio. "The Fed has been working hard to show that taking back a little bit of bond buying isn't removing accommodation, and Bernanke was very firm on that. There was a bit of a sentiment shift." 
Retail report is grim recessionary sign
Meanwhile, the worst retail sales number in 12 months has some analysts wondering whether the U.S. economy is suddenly going back into recession. "U.S. economic growth has again slowed sharply, skidding dangerously close in the second quarter to an outright contraction in gross domestic product," MarketWatch noted. "Following the releases Monday of tepid reports on retail sales and inventory accumulation, forecasters marked down their GDP expectations from 1.4% to 1.1%. It's probable that U.S. GDP rose less than 2% for the third quarter in a row, and it's possible that growth was less than 1% for the second quarter in the last three."
Bernanke to testify this week
Clues on how the Fed might react to this latest data might surface in Bernanke's testimony before a House panel Tuesday and Senate committee Wednesday. "The main focus is Bernanke's testimony to the Congress, and that should really give us more guidance to whether tapering will start in September or December," Danske Bank analyst Christin Tuxen told Reuters. "Gold will be very sensitive to what happens to the euro/dollar after that and to Treasury yields as well." 
China's GDP loses steam
Signs of an economic slowdown also are appearing in China."China's new tough-love approach to overhauling its giant economy showed through in lackluster economic data released on Monday, underlining just how rapidly growth in the once-sizzling economy has cooled," The New York Timesreported. "China's economy grew 7.5 percent in the second quarter of this year, compared with the same period a year earlier, the National Bureau of Statistics reported. The figure was in line with economists' expectations, but represented a progressive slowdown from 7.7 percent gross domestic product growth in the first quarter and 7.9 percent in the final three months of 2012." 
Hard landing might help gold
However, contrary to the mainstream view, a Chinese slowdown might spur even more gold buying. "We actually think that any sort of hard-landing scenario could actually be beneficial" for gold, Sudakshina Unnikrishnan of Barclays told CNBC on Monday. "If there were to be a very steep deceleration in Chinese growth, we would actually see a structural shift in the way China actually buys gold, so we could see Chinese domestic investors starting to add gold much more strategically ...  in contrast to now, which is when they buy during festival time or when inflation becomes another issue or when prices internationally come off." 
Gold trade in China is exploding
For now, though, Chinese gold demand remains absolutely sizzling. "Physical gold delivered to buyers by China's largest bullion bourse in the first half of this year almost matched the entire amount taken from its vaults in 2012, and was more than double the country's annual production," Bloomberg noted.
The Shanghai Gold Exchange supplied 1,098 metric tons in the six months through June, compared with 1,139 tons for the whole of last year, according to data from the bourse today. Output in China, the world's largest gold producer, reached a record 403 tons last year, according to the China Gold Association.

The surge in deliveries underscores buying interest in China, which may pass India as the largest bullion consumer as early as this year after the government in New Delhi raised import taxes while regulators in Beijing made investing in the metal easier. Miners, smelters and refineries are required to sell gold via the Shanghai bourse, the only state-sanctioned marketplace for spot bullion in China.

"The number shows demand for bullion as an underlying asset in China that investors here remained big buyers of the physical commodity this year," said Fu Peng, a commodity strategist in Beijing at Galaxy Futures Co, a brokerage controlled by the country's sovereign wealth fund.

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