Dollar Strength and weaker Oil Fundamentals Drive Gold Prices Lower
After falling 3.21% in October and 5.91% in September, the U.S. Comex gold futures fell a further 0.33% in the first two days of November and ended at $1,167.70 on Tuesday. The Euro Stoxx 50 Index has plunged 4.11% while the S&P 500 Index has climbed 2.44% during October. The unexpected additional QE from the Bank of Japan has pushed the Nikkei higher by about 7.7% and the Japanese Yen weaker by almost four percent. The Dollar Index has climbed 1.14% last month and is flat so far in November. The crude oil futures plunged to a trough of $75.84 on 4 November and traded back to $77.19 on Tuesday. The U.S. ten-year government bond yield and the German ten-year Bund yield rallied about 15bp and 10bp respectively in October despite the diverged equity performances.
Global Growth Looks Shaky
The European Commission has unsurprisingly cut the 2014 and 2015 Eurozone GDP growth rate to 0.8% and 1.1% respectively and has projected a 0.8% inflation rate in 2015 versus the ECB’s goal of around two percent. The GDP projections of Germany, Italy, and France have all been lowered. Japan reported that its September real GDP has declined 0.3% month-on-month after the BOJ has raised its monetary base annual target from 60 to 70 trillion Yen to 80 trillion Yen. The October manufacturing PMI of the Eurozone and China were about flat from the September level. However, the U.S. October ISM manufacturing index surged to 59 from 56.6 in September. The September U.S. trade deficit grew more than expected while the monthly exports declined the first time in five months by 1.5% – a sign that the global economy is weakening.
Dollar Strength and Commodities Rout
The crude oil futures plunged below $80 as a result of a higher U.S. oil output and Saudi Arabia cutting its exports prices. Lower oil price leads to lower inflation expectations and weaker safe haven gold demand. The decline in the Yen and the plunge in the oil prices further boosted the Dollar Index and weakened the gold price sentiment. The U.S. SPDR gold trust holdings fell to a six-year low as of Tuesday with the year-to-date decline amounting to 79 metric tons. The global gold ETP holdings have also fallen 115.7 tons this year although the drop was much smaller than the decline of 869.1 tons in 2013. The strength of the dollar is still the key driver of the gold prices in the near future.
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