Geopolitics Pull and the U.S. Data Push on Gold
The U.S. Comex gold futures have climbed 0.80% this week to end at
$1,289.50 on Thursday. Last week, the prices tumbled two percent. This
week, the rising geopolitical tensions in Ukraine and Russia have
raised the bids for safe haven assets such as gold, the U.S. Treasuries,
the Bunds, and the Dollar. Week-to-date, the S&P 500 Index and the
Euro Stoxx 50 Index have risen 0.46% and 2.14% respectively, helped by
the growth recovery in the U.S. and the supportive statements by the ECB
at Jackson Hole last week. The U.S. ten-year government bond yield
reached a 14-month low of 2.336% on Thursday while the ten-year German
Bund yield plunged to 88bp on Thursday.
Mounting Fed Interest Rate Moves Speculation
The latest U.S. data all show a stronger economy. The U.S. Q2 GDP was
revised up to 4.2% annualized from four percent in the first release due
to the higher revised corporate investment spending and a smaller
revised trade deficit. The July pending home sales rose 3.3% after a
drop of 1.3% in June. The Bloomberg Consumer Comfort Index climbed to a
five-week high, helped by better prospects in the personal incomes and
the employment rate. The S&P 500’s push beyond 2,000 has boosted
consumer sentiment. The Fed is watching the incoming data to adjust
their rate hold views. On the other hand, the ECB will likely add more
stimuli now that the largest two economies, Germany and France, are
struggling to grow and yearly inflation is dipping below 0.5%. In
Japan, the July industrial production climbed slower than expected while
earnings, adjusted for price increase because of the sales tax,
actually fell 3.2% in June.
Strong Trend in Gold Demand in China
The gold prices are affected in the short-term by the changes in
rhetoric in the Ukrainian and Russian conflict, the fight between Israel
and the Gaza’s Hamas rulers, and the airstrikes inside Syria. The
World Gold Council has reported recently that the jewellery demand in
China has trebled in value during 2009 to 2013 and the demand from China
will likely grow by another 20% by the end of 2017, underpinning the
nation’s support for gold in the longer-term.
What to Watch
We will watch the August China NBS manufacturing PMI index and the
Eurozone final manufacturing PMI on 1 September, the U.S. August ISM
manufacturing index on 2 September, the preliminary Q2 GDP of the
Eurozone on 3 September, the Bank of England and the ECB interest rates
decisions and announcements on 4 September as well as the U.S. August
non-farm payrolls and the unemployment rate on 5 September.
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29 Aug 2014 | Categories: Gold
