Investors Add to Gold ETPs in the Face of Deepening European Credit Crisis
The U.S. Comex gold futures fell 0.76% to $1,609.4 on Thursday. Gold
prices have surged 3.8% since last Thursday, boosted by the initial
market optimism towards the EU Summit’s conclusions. Having jumped
3.38% since last Thursday, the S&P500 was down 0.47% on Thursday,
while the Stoxx50 retraced 1.53%, after having surged 7.54% since last
Thursday. The Euro/Dollar fell to 1.2384 as of Friday morning in Asia,
giving up all of its gains since the announcements at the EU Summit on
29 June, while the Dollar Index is now at 82.836, back to the level on
28 June.
The U.S. dollar index rebounded while the Euro/Dollar sold off. The
U.S. unemployment claims fell 14,000 last week to 374,000, and the
private employers added 176,000 jobs, while the ECB cut rates by 25bp on
Thursday, supported by the worsening economic contraction in Europe.
Prior to the ECB announcement, China also cut its lending rates by 31bp
and the deposit rates by 25bp, in order to stimulate lending growth, and
to keep its economic recovery on track in 2H 2012. The Bank of England
restarted its bond purchasing program or quantitative easing measures,
citing higher banks’ borrowing costs because of the worsening credit
crisis in Europe.
Gold was not able to extend its gains from last week, despite the global
central banks’ efforts to stimulate their economies. In the
short-term, disinflationary forces around the globe, and the concern
that the U.S. might not need to do QE3, are putting a damper on gold’s
advance. However, a number of houses including Goldman Sachs and
Societe Generale are still calling for a QE3 in the U.S., and expect the
gold prices to be well-supported by a lower real interest rate.
While the European crisis deepens, investment demand for gold has
continued to climb. The holdings in gold-backed ETPs rose to 2,413.61
tons, an all-time high, as of Wednesday, according to Bloomberg.
Blackrock reported that investors switched out of the U.S. Treasuries
ETPs and added $2.2 billion to gold-backed ETPs in June.
All eyes will be on the U.S. June non-farm payrolls change on Friday,
with the median forecast at 100,000. Market will watch for the
Eurogroup meeting next Monday on Spanish bank aid, and the new loans and
M2 growth data from China next Wednesday, as well as China’s Q2 GDP
growth number next Friday.
Sharps Pixley, London
www.sharpspixley.com