Uncertainty in QE3 Timing Despite Grim Global Outlook Keeps Gold Price in a Range
The U.S. gold futures continued to weaken on Wednesday and Thursday,
falling 0.9% to $1,565.3, and underperformed the broader markets. In
the past two days, the S&P and the Stoxx 50 dropped 0.5% and 0.6%
respectively, while the Euro/dollar fell 0.38% to another two-year low.
The CRB commodity index climbed 0.56%, and the Dollar Index went up
0.31%. The U.S. and the German 10-year government bond yields rallied
by 5 and 7 basis points respectively, approaching the twenty-year low
level reached in the beginning of June.
Gold prices retreated, as the U.S. Fed did not indicate an imminent QE3
in the FOMC minutes released yesterday, although some members favoured
further policy easing if the Fed’s dual objectives of full employment
and stable prices cannot be achieved. However, the FOMC meeting took
place before the U.S. Labour Department reported a weak payrolls number
in June. Next week, Ben Bernanke will testify before the Congress on
the U.S. economic outlook, giving the market more insights of his
thinking.
On Thursday, Moody’s cut Italy’s sovereign rating two notches to Baa2
from A3, and warned of further downgrades, due to Italy’s higher funding
costs, contracting growth, and risks from Greece and Spain.
Although the Euro area’s industrial production surprisingly climbed 0.6%
in May, helped by Germany’s rebound of 1.5%, the Euro area is still
expected to contract in Q2. According to the Washington-based Pew
Research Centre, the global economic mood is still pretty grim: a median
of 27% of the 21 surveyed countries consider their economy is doing
well, with the number for the U.S. at 31%, and that for Europe at 16%. A
surprise rate cut by Korea, and the plunge of Singapore’s GDP to -1.1%
in Q2 reflected external weaknesses, and the impact from European’s debt
crisis. China’s Q2 GDP slowed to 7.6% in Q2 from 8.1% in Q1, allowing
China more room to ease.
On Wednesday, the world’s second largest gold company, Goldcorp, cut
back its 2012 gold production by about 200,000 ounces. Earlier in June,
South Africa reported gold production was down 12.8% yoy in April.
Operational delays and safety-related maintenance issues have restricted
gold supplies.
Next week, the events to watch include Bernanke’s testimony to
Washington on 17 to 18 July, and the E17 group meeting on 20 July.
Sharps Pixley, London
www.sharpspixley.com