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A Place for Gold as Economic News Disappoints

The U.S. Comex gold futures ended at $1,310.10 on Tuesday and have hardly changed this week after rallying 1.24% last week. The Euro Stoxx 50 Index has rebounded 0.56% this week after falling 5.30% in the past two weeks while the S&P 500 Index has rallied 0.11% this week and 0.33% last week after plunging 2.69% the week before last. The Dollar Index inched up 0.14% to 81.5 on Tuesday after rising for four consecutive weeks. The U.S. ten-year government bond yield hit a recent low of 2.412% since June 2013 and ended at 2.45% on Tuesday.

More Bad Economic News
While the U.S. June job openings rose to a thirteen year high of 4.67 million and the number of people being hired climbed to 4.83 million, economic news elsewhere has been less encouraging. The Q2 Japanese real GDP declined to an annualized 6.8% as the sales tax levy punctuated the consumption and investment demand. Price deflator did rise two percent in Q2, likely moving Japan out of deflation. Europe’s economic conditions have been deteriorating with the gauge of investor and analyst expectations for the next six months in Germany plunging to 8.6 in August, the lowest level in two years, from an expected 17. The ten-year German Bund yield touched 1.023% on 8 August, reflecting that the ECB has not done enough to arrest deflation. The July aggregate financing data for China has plunged to 273.1 billion Yuan, the lowest level since the end of 2008, adding to more downside risks to growth.

Gold Demand
The managed money net combined gold positions have fallen almost 15% during the week of 5 August as the long positions fell 7.8% and the short positions rose 25%. In China and India, the physical demand may be weaker this year compared to last year due to the relatively higher gold prices this year and the gold import curb and a weaker monsoon in India. The SPDR Gold Trust holdings have fallen about six metric tons since the end of July to 795.86 metric tons as of 12 August. One bright spot is that the massive unloading of the Gold Trust has stopped this year. So far, the holdings have climbed 2.4 metric tons compared to a plunge of 552.6 metric tons in 2013. The case for a diversification with gold in a portfolio remains strong especially with the valuation of the stock and bond markets being stretched.

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13 Aug 2014 | Categories: Gold

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