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Bearish Sentiment versus Physical Shortages in Gold

The U.S. Comex gold futures dropped 0.47% this week to $1,089.80 on Thursday and have been trading in the range of $1,080 and $1,100 since 21 July. The Dollar Index has risen 0.51% to 97.833 on Thursday. Week-to-Thursday, the S&P 500 Index has fallen 0.90% while the Euro Stoxx 50 Index has risen 1.93%. The crude oil futures have plunged 5.22% this week to $44.66 while the Brent futures ended at $49.52 on Thursday. The U.S. ten-year Treasury bond yield widened 4bp this week to 2.221% while the German ten-year Bund yield rose 11bp to 0.752%.

Central Banks Inactions
The Bank of England decided to hold the interest rate unchanged on 6 August saying that the inflation would be subdue because of the strengthening Pound and the fall in oil prices. The Bank reduced its 2015 inflation forecast from 0.6% to 0.3% although the U.K. has been growing for ten quarters. The first interest rate hike may look more likely in 2016 than this year since the Pound has been doing the tightening job. For Japan, the economists expect no change in the target annual rise in the monetary base of 80 trillion Yen.

The Missing Gold Traders
Bloomberg reported that the gold volume was 40% lower than the 100-day average as of 6 August while the volatility has dropped from a recent peak of almost 20% in January this year to below 12% currently. Sentiment remains bearish on the trading side as more analysts expect prices to drop further. However, signs of serious physical gold shortages have emerged. The gold futures on the LBMA are trading below the spot price, a sign that the buyers believe that it will be difficult to receive physical gold for delivery in the future. Also, since the middle of July, the gold lease rates have surged, reflecting the rising demand from the bullion banks to borrow gold from the central banks.

What to Monitor
The market will closely look at the July U.S. non-farm payrolls data and the unemployment rate on 7 August. Next week, some important data to follow include the July China aggregate financing and M2 growth on 10 August, the July China retail sales, fixed asset investments, and industrial production on 12 August, the ECB minutes and the July U.S. retail sales on 13 August as well as the preliminary Q2 GDP for the Eurozone on 14 August.

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07 Aug 2015 | Categories: Gold

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