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Commodities Price Trends and Dollar Strength Guiding Gold Prices

The U.S. Comex gold futures rebounded almost $20 this week to end at $1,212.40 on Tuesday. The Dollar Index tumbled from 86.694 last Friday, the highest level since June 2010, to 85.672 on Tuesday. The S&P 500 Index and the Euro Stoxx 50 Index declined 1.66% and 1.64% respectively while the emerging market equities rebounded 1.40% this week. The CRB Commodities Index also rebounded about 1.30% this week. The U.S. ten-year government bond yield dropped about 10bp in the past two days to 2.34%, the lowest level since the end of August. The ten-year German Bund yield dropped 2bp to 0.905% this week.

Tumbling Euro and German Production
Last Friday’s stronger than expected U.S. September private payrolls of 248,000 and an unemployment rate of 5.9% caused the gold prices to tumble to $1,192 and the Euro/Dollar to drop to 1.2516, the lowest level since August 2012. The German industrial production in September of -4% was the worst monthly decline since 2009, caused by falling factory and new orders. The IMF further lowered its global economic growth forecast in 2015 from 4% to 3.8% but raised the U.S. GDP growth to 2.2% this year and 3.1% next year. The growth of Europe, Japan, Brazil, and Russia are all lowered. Weaker growth projections have led to global equities sell-off and a temporary bounce in the safe havens including the U.S. Treasury and gold prices.

Investors Positioning and Commodities Prices Decline
The managed money net combined gold positions declined 15% to 37,743 contracts during the week ending 30 September, approaching this year’s low. However, the weekly percentage rise in the short positions has narrowed to 4.5% from the double-digit percentage weekly increase in the past six weeks. With economic growth projections and commodities prices falling and the Europe disinflation continuing, traders do not have strong incentives to buy gold as an inflation hedge. The commodities price trends and the dollar strength will provide short-term guidance to the gold prices.

This story is provided by Sharps Pixley, for more information and content please visit: www.SharpsPixley.com

08 Oct 2014 | Categories: Gold, Dollar

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