Strong June US payroll numbers released on Friday sent precious metals lower. Not only were June figures higher than consensus expectations, there were sizable upward revisions to previous months’ figures. Investors took this as further confirmation the Fed will be reducing its bond buying program in the next few months. On the other hand, forward guidance by the European Central Bank and the Bank of England (the latter under new leadership), made it clear that they don’t foresee tightening monetary conditions any time soon. This helped push up the US dollar, which further weighed on precious metals performance. Earlier in the week, the Chinese push to ease the liquidity crunch in China’s interbank market is helping allay fears of a sharp slowdown in China’s growth. Easier monetary conditions may provide support for platinum and palladium in coming weeks and months. While rising rates and a strong US dollar have been negative for gold price performance, as noted below, central banks and China consumers appear to view the price weakness as a buying opportunity.

China’s gold imports from Hong Kong increased 40% in May from a month earlier, as bargain hunters increased purchases. Chinese consumers are playing an increasingly important role in global physical demand for gold, with imports of gold through Hong Kong (one of the few transparent measure of China’s international demand for gold), surging in May. Last year these imports were the equivalent to 18% of global annual gold demand.  On current trends this is set to increase further this year.  Earlier this year import quotas on gold were increased and it appears that Chinese buyers view the sharp drop in the gold price as a buying opportunity. It seems clear that this year China will surpass India as the world’s largest consumer of gold.  In the medium to long-term Chinese consumer and investors will likely emerge as one of the key drivers of gold price performance.

Central banks buy 24 tonnes of gold in April and May. Emerging market central banks remained large buyers of gold in April and May, buying 24 tonnes of gold over the period. April purchases were considerably higher than the corresponding period last year and while the scale of May purchases were lower, these are only first estimates produced by the IMF, based on data reported to it by individual central banks. World Gold Council quarterly data, which will be produced in coming weeks, also include estimates of other official sector buying and should provide a fuller picture. However, the underlying trend of strong net central bank purchases of gold appears to be firmly intact.

Platinum and palladium prices may rise on growing South Africa labor issues. The Association of Mineworkers and Construction Union, the largest union representing miners from the world’s three largest platinum mines, refused to sign an agreement that seeks to bring stability to mines in South Africa. Palladium, a by-product of platinum mining, rose 4%, defying the negative trend seen elsewhere in the precious metals complex last week. The supply deficit in palladium is likely to be especially acute given strong auto sales in US and China, where gasoline engines use the metal in pollution abatement technology.

Key events to watch this week. Today the Eurogroup is expected to reach a deal with the Greek government on the next tranche of bailout funds. Investors will also be poised for news from Portugal and Egypt as they each grapple with establishing new leadership.