Bearish Gold Sentiment Sets in with Better U.S. Labour Market and Gold ETP Outflow
The U.S. Comex gold futures fell 5.91% during September and 8.43% in Q3.
The monthly loss was the worst since June 2013. Year-to-date, the
gold futures have risen just about 0.70%. On the contrary, the Dollar
Index jumped 3.85% in September and 7.72% in Q3, the largest quarterly
rise since Q3 in 2008. The S&P 500 Index has dropped almost two
percent since reaching an intra-day peak of 2,019 on 19 September. The
Euro Stoxx 50 Index was almost flat for the quarter and rose 1.68% in
September. The U.S. ten-year Treasury yield ended at 2.49% last month
while the German ten-year Bund yield finished at 0.945%. Most advanced
economies’ bond yields rose in September.
Strong Dollar Reflects Divergent Central Banks Policies
The Dollar has risen due to geopolitical tensions in Eastern Europe and
the Middle East as well as the expected rise in the U.S. interest rates
and a likely QE in the Eurozone next year. The dollar strength however
can pose some risks to the U.S. economic growth, making the Fed a bit
more cautious in raising interest rates. The September U.S. Consumer
Confidence Index fell to 86 from 92.4 in August while the PCE deflator
rose only 1.5% year-on-year in August compared to 1.7% in May.
Germany’s unemployment rose 12,000 versus an expected decline of 2,000
in September while the economy contracted in Q2.
Investors’ Positioning
The recent strength in the labour market in the U.S. and the outflow of
gold-backed ETPs provide a negative backdrop for gold prices. According
to the CFTC, the managed money combined net gold positions dropped for
six consecutive weeks to 44,265 contracts, a 69% decline from early
July. The short gold contracts have approached the recent peak level as
of December 2013. According to Barclays, the gold-backed ETP holdings
have turned decidedly negative, falling 27.5 tonnes in the month to 25
September and 77.4 tonnes for the year. However, with the bearish macro
backdrop, declining sentiment, and falling prices, the gold market has
priced in most of the bearish news. The market will clearly focus on
the ECB announcement this Thursday for the implementation of its asset
purchases program and a hint of QE next year.
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01 Oct 2014 | Categories: Gold
