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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

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