Beware of the Gold Short-Covering
After a brief short-covering rally of 2.16% on Wednesday, the U.S. Comex gold futures dropped 1.23% on Thursday to $1,231.90 and fell a further 0.5% during Asia’s Friday morning. On Thursday, the Dollar Index suffered a 0.74% peak-to-trough loss, preventing the gold futures from dropping further. The S&P 500 index dropped 0.56% while the Euro Stoxx 50 index plunged 2.01% in the past two days. This week, the CRB Commodities Index has risen one percent while the 10-year U.S. government bond yield has jumped almost 13bp to 2.8717% on Thursday on the prospect of better U.S. economic growth.
Big Data Week for the U.S. and the ECB Hold
Two
regional Fed presidents who are non-voters until 2015 have recently
said that they either want to announce a total size of the remaining
bond purchases or see a definitive timetable for winding down the QE
programme. The U.S. Q3 GDP was revised to an annualized 3.6% from the
earlier estimate of 2.8% although half of the gain in growth was because
of inventory growth. The latest weekly jobless claims fell 23,000 to
298,000 compared to an expected 320,000 while the November ADP report
showed that the private employment jumped 215,000. The Q4 growth in the
U.S. will perhaps not slow down as much. Traders will focus on the
November non-farm payroll and the unemployment rate on Friday to see if
the Fed will start tapering this month. In Europe, the ECB president
did not change the interest rates despite forecasting an inflation of
below two percent for both 2014 and 2015. The Euro/Dollar rallied and
Germany’s 10-year government bond yield jumped as a result.
Gold Shorts have been Building Up
While
the gold-backed ETP holdings have dropped 10 metric tons this week and
800 metric tons to 1,831 metric tons on 4 December, the number of short
gold contracts by managed money is also approaching the high reached on 9
July. The gold price subsequently rallied 20% from the trough at the
end of June. There is no guarantee that gold will not fall further, but
beware of the short-covering rally.
What to Watch
We
will monitor China’s November exports and imports data and Japan’s Q3
GDP on 8 December, the St. Louis Fed President’s (voter) speech and
China’s November CPI on 9 December, China’s November industrial
production and retail sales on 10 December as well as the ECB monthly
bulletin and the November U.S. retail sales on 12 December.
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06 Dec 2013 | Categories: Gold
