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A Tough Month for Most Assets Including Gold while Dollar Shines

The U.S. Comex gold futures fell 1.69% to $1,281.30 on the last day of July but rebounded about two dollars during Asian Friday morning. The gold futures have fallen 3.08% in July after surging 6.13% in June. The S&P 500 Index, the Dow Jones Index, and the Euro Stoxx 50 Index fell two percent, 1.88% and 1.70% respectively on Thursday while the VIX index surged 27% to the highest level since mid-April. While the S&P 500 Index has dropped 1.51% in July after five months of rally, the Dow has erased all its gains this year. The CRB Commodities Index has dropped 1.31% this week and the crude oil futures have fallen 6.83% in July. The U.S. ten-year government bond yield rose 9bp for the week to 2.558% on Thursday and rose 3bp in July. A U.S. junk-bond index also dropped 1.60% in July after rising for ten consecutive months. While most of the asset classes have suffered in July, the Dollar Index has decidedly bucked the trend and rose 2.11%.

Stock Valuations and Fed Interest Rates Fear
The U.S. Fed cut its bond purchases for the sixth time by $10 billion a month to $25 billion. While the Fed is still preoccupied with the labour market outlook, inflation has risen recently and the economy has been rebounding after the Q1 rout, raising market concerns that the interest rates would have to be raised sooner than expected. Earnings disappointments from Exxon and Micron in the U.S., Samsung in Asia, to Deutsche Lufthansa and Adidas in Europe as well as a $4.8billion first-half loss in Banco Espirito Santo have spooked the global markets at a time when stock valuations, especially in the advanced economies, are not cheap.

Global Gold ETF Demand has Risen in July
While gold prices have slumped in July, global gold ETF demand has jumped about one percent in July after falling about three percent in the previous three months. Year-to-date, the global gold ETF demand has fallen about two percent to 1730.7 metric tons as of 25 July. On the other hand, Reuters reported that the jewellery makers in China experienced a 40 to 60 percent drop in gold fabrication demand in Q2 year-over year. A big drop in prices in the same period last year caused consumers to rush to buy gold jewellery, but prices are not low enough this year.

What to Watch
The market will be watching closely the U.S. July non-farm payroll, the unemployment rate, and the June core PCE price index on 1 August. Next week, we will monitor the Bank of England interest rate and asset purchase decisions and the ECB interest rate announcement and its press conference on 7 August as well as the Chinese July exports and imports data on 8 August.

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01 Aug 2014 | Categories: Gold

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