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A Closer Step to Coordinated Stimulus Boosts Gold Price

Gold futures had the largest one-day jump since March 2009 of 3.8% last Friday, ending the week at $1,622.10. Month-to-date to 5 June, gold futures rebounded 3.5% while S&P fell 1.9%, Stoxx dropped 1.5% and emerging market equities fell 2.2%. As of Wednesday morning in Asia, gold futures have risen another $9, reacting positively to the news that the G7 countries would coordinate their efforts on the European banking and sovereign crises in the run-up to the G20 summit on 18 June. 10-year Spanish bond yield, though still above 6%, rallied about 35bp from the peak at 6.65% on 30 May.

Expectations of more global stimulus boosted gold price after the dismal May U.S. jobs report; payrolls rose only 69,000 compared to a Bloomberg median expectation of 150,000 and a gain of 77,000 in April. Unemployment rate inched up 0.1% to 8.2%. Gold is re-asserting itself as a safe-haven over U.S. dollar assets as U.S. economic growth stalls.

China’s record gold imports from Hong Kong in April further cheered gold investors. Gold imports climbed for a third consecutive month and reached 103.6 metric tons versus 63 metric tons in March. According to Bloomberg gold imports were 239 metric tons in the first 4 months of 2012, more than eight-fold increase than the same period in 2011. Central banks, especially those in Asia, were likely big buyers of gold in the range of $1,500 to $1,550, effectively providing a floor to the gold price. News that Turkish Central Bank may raise its limit of lira reserves held in gold from 20% to 30% also supports gold price.

In India, gold futures reached an all-time high of INR 30,099 per 10 grams last Saturday as Rupee fell to the record low of 56 per dollar, prompting big selling in gold. Bloomberg reported that the recent rise in scrap sales in India signals a slowdown in physical buying. The fall in Indian consumption could be picked up by Chinese consumption which is expected to top 900 to 1,000 metric tons in 2012 according to the World Gold Council.

Market will focus on ECB’s interest rate decision and statement on Wednesday and Ben Bernanke’s testimony on Thursday. While ECB may not lower interest rate yet, banks’ funding problems, moderating inflation and worse sentiment may pressure ECB to act sooner rather than later.

Austin Kiddle
Sharps Pixley, London

06 Jun 2012 | Categories: Gold

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