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Central-Bank Put and the V-shaped Rebound in Both Stock and Gold Prices

After touching a recent low of $1,183.30 on 6 October in Asia, the U.S. Comex gold futures have rebounded 5.78% to $1,251.70 on Tuesday. The gold futures have risen one percent this week after rising for two consecutive weeks. Year-to-date, the gold futures have risen 4.11% compared to 6.73% in the S&P 500 Index, -0.61% in the Euro Stoxx 50 Index, and -2.56% in the CRB Commodities Index. The U.S. ten-year Treasury bond yield rose 3bp this week to 2.222% on Tuesday while the German ten-year Bund yield rose 1bp to 0.869%.

China Growth and Crude Oil Decline Capture Attention
Investors and traders have been pre-occupied with the Chinese growth outlook and the crash in the oil prices in addition to the stock market decline since mid-September. With the Chinese Q3 GDP growth reaching 7.3% compared to the 7.2% estimated and the September industrial production output at eight percent year-over-year compared to the expected 7.5%, the crude oil futures and the Brent futures got a boost on Tuesday. Lower gasoline prices will boost consumer spending in the U.S. The U.S. existing home sales, which rose 2.4% in September to an annual rate of 5.17 million, reached the highest level since September last year.

Physical Demand Up and Interest Rate Expectation Down
With the physical gold demand going up and the U.S. interest rate outlook going down given the Fed’s worry about the implications from weaker foreign economic growth and the Bank of England’s likely delay in hiking rates, the gold prices have received a decent near-term support. The All India Gems & Jewellery Trade Federation expects that the demand for gold will rise 15% to 20% in Q4. Gold imports have already jumped 450% year-on-year to $3.75 billion in September when domestic prices have fallen over seven percent this year. The Diwali festival this Thursday, the upcoming wedding season, and more optimism surrounding the Modi government will likely prop up gold demand in India this quarter. The managed money net total combined gold positions have jumped almost 40% during the week ending 14 October, led by a 30% jump in the net long positions.

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22 Oct 2014 | Categories: Gold

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