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A Falling Dollar did not Help Gold Prices in April

The U.S. Comex gold futures ended at $1,182.40 at the end of April and fluctuated between $1,174 and $1,224. The gold futures were flat for the month while the S&P 500 Index returned almost one percent and the Euro Stoxx 50 Index fell 1.74%. Year-to-date, the gold futures were almost unchanged at -0.14% compared to the S&P 500 at 1.92% and the Euro Stoxx at a whopping 15.87%. The Dollar Index fell 3.82% in April to 94.6 and returned 4.80% year-to-date. The ten-year German Bund yield shot up from the trough of 7.4bp on 20 April to end the month at 36.4bp while the ten-year U.S. Treasury bond yield climbed 11bp to 2.032%. The crude oil futures jumped 25.61% to $59.63 in April, outperforming all other major asset classes.

The Fed, Greece, and Oil
A slew of weak data in the U.S. in the first quarter including a 0.2 percent annualized rise in the Q1 U.S. GDP have led to a more cautious Fed, who is unlikely to raise rates at least until September this year. They still believe that the U.S. growth will pick up in the second half, not ruling out a rate hike. With the Greek Prime Minister removing his Finance Minister from the day-to-day negotiations on the bailout agreement, a preliminary deal may be possible by 3 May although the pension reforms and the sales tax increase will be deferred to June’s discussions. The weaker U.S. data and the prospect of a Greek deal have pushed up the Euro/Dollar by 4.6% in April. With the oil inventories at Cushing falling 514,000 barrels last week, there is little danger that the storage space at Cushing will be filled up soon. At the same time, 56 percent of the oil rigs are now idled, bringing down the daily U.S. production to a six-week low. The crude oil futures have rebounded 37% since the trough in March.

Physical Demand and ETP Flows Providing Some Support for Gold
So far, the festival-related buying of gold in India has been slightly disappointing despite the lower prices. However, the Swiss gold exports to China and India have almost doubled on a yearly basis. Central banks have bought a net 40 tonnes of gold this year. The gold-backed ETPs have risen 42 tonnes this year to 1752 tonnes.

What to Watch
We will monitor the final manufacturing PMI index in April for China and the Eurozone on 4 May, the various Fed Presidents’ speeches on 4 May and 6 May as well as the China April trade data and the April U.S. non-farm payrolls and the unemployment rate on 8 May. We will also be curious if Greece can gather four billion Euros to repay its debt and 1.5 billion Euros to pay its workers and pensioners by the end of May.

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01 May 2015 | Categories: Gold

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