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Global Gold Buying with Fragile European Banks in Focus

The U.S. Comex gold futures have rallied 1.72% in the past two days and ended at $1,339.20 on Thursday, touching a four-month high of $1,345.80 intra-day. The S&P 500 Index fell about one percent this week while the Euro Stoxx 50 Index plunged 3.64% and the Dollar Index rose 0.18%. The U.S. ten-year government bond yield ended at 2.537% on Thursday. The CRB Commodity Index has fared badly, down 2.29% for the week.

Bonds of the U.S. and Portugal
The U.S. ten-year Treasury bond enjoyed a safe-haven bid and rallied 10bp this week to a five-week low and the ten-year German Bunds yield touched a two-year low on Thursday while the ten-year Portugal government bond yield surged 40bp this week. In the FOMC minutes on Wednesday, the Fed signalled that they will end the bond purchases by October this year but remained undecided on the timing of the interest rate hike while they expected wage growth to be modest and the inflation rate to be below two percent. The missing of a bond payment by the parent of the second largest bank in Portugal, Banco Espirito Santo SA, kicked off the turmoil in the European stocks and bond markets, showing that the Peripheral European banks still pose systemic challenges to Europe and the ECB. Safe haven demand has helped both the Treasury bond and gold prices in the past two days.

Indian Budget Keeps Gold Import Duty Unchanged
Defying the market’s expectations, the Indian Finance Minister did not cut the gold import duty, causing the Indian gold prices to jump over two percent on Thursday. The budget also encourages the savers to move their money into the financial assets over gold and real estate. Nevertheless, the Indian traders and investors bought gold amidst a safe-haven bid globally.

What to Watch
We will monitor the Eurozone May industrial production on 14 July, the U.S. June retail sales on 15 July, China’s June industrial production and Q2 GDP growth and the U.S. June industrial production on 16 July as well as the U.S. June Leading Indicators Index on 18 July.

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11 Jul 2014 | Categories: Gold

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