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Euro and Gold Both Losing Favour

The U.S. Comex gold futures traded as low as $1,240.20 on 3 June before ending at $1,244.50 on Tuesday. Last month, the futures have dropped 3.88%, the worst monthly performance since September 2013. Coincidentally, the Euro Dollar has fallen 1.67% in May. The CRB Commodities Index has also fallen 1.31% last month after rising in the past five consecutive months. The S&P 500 Index has risen 2.10% in May while the Euro Stoxx 50 Index has climbed 1.44% last month. The U.S. ten-year government bond yield has dropped from 2.647% at the end of April to 2.477% at the end of May but has jumped to almost 2.60% on Tuesday. The Dollar Index rose 0.11% to 80.369 last month.

Global Economic Pulse
China’s May HSBC PMI Index rose to 49.4 in May from 48.1 in the prior month while an April Leading Index climbed from 99.75 in March to 100.11. According to the Chinese President, the economy is adjusting to a “new normal” as it is rebalancing from an investment-led to consumption-led growth. The May ISM Index in the U.S. rebounded from 54.9 in April to 55.4 in May while the May Eurozone PMI was 52.2 in May compared to 52.5 in April. The Eurozone unemployment rate in May inched down 0.1% to 11.7%. With the Eurozone inflation rate likely to be lowered from the predicted one percent in March, the ECB will likely cut rates by 10 to 15 basis points in the benchmark and deposit rates. Investors are expecting the May U.S. labour report to support a further cut to the Fed’s QE purchases. Rising Dollar expectation has been putting pressure on the gold prices.

Gold Sentiment
The relative strength index of the gold futures has been hovering at 30 since the end of May, indicating an oversold position. The managed money net combined positions in gold have dropped 24.31% during the week of 27 May, led by a 72.25% jump in the number of short contracts to 53,882, back to the level in mid-February. However, the central banks remain buyers - purchasing 44 tonnes in April. According to the IMF, Russia added around 28 tonnes in April, Turkey bought 13 tonnes while Kazakhstan added 2.7 tonnes.

04 Jun 2014 | Categories: Gold

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