Global Growth Outlook Concerns and Stalling Dollar Helped Gold
The U.S. Comex gold futures shot up 2.72% this week to $1,225.30 on
Thursday as the market has realized that the Fed will not raise interest
rates any time soon. The Dollar Index dropped 1.35% in the same period
to finish at 85.522 on Thursday after touching a recent high of 86.746
on 3 October. The S&P 500 Index and the Euro Stoxx 50 Index are
down 1.98% and 2.90% this week with the VIX (the fear index) surging
from 14.55% at the end of last week to 18.76% on Thursday. The crude
oil futures ended at $85.77 on Thursday, dropping more than 20% from the
peak in June. The U.S. ten-year government bond yield ended at 2.314%
on Thursday, falling 12bp this week.
Find the Fed Confusing?
The gold market had a huge rally on Thursday after the September FOMC
minutes have revealed that the Fed is far from raising interest rates as
inflation has been too low and the U.S. growth may be hurt by the
foreign economic slowdown and the strong dollar. Still, the median
forecast of the 2015 year-end Fed Funds rate by the Fed governors has
moved up from 0.75% in the December 2013 minutes to 1.375% in the
September 2014 minutes, and the doves in the Fed have raised their
interest rate forecasts. Earlier, Germany’s data spooked the equity
markets as the September monthly industrial production data have dropped
the most since January 2009 and the monthly exports have declined 5.8%
in August. The ECB President again pledged to loosen more on the
monetary front if needed and urged the governments to reform and ease
fiscally as deflation is taking hold and the Eurozone may enter another
recession.
Gold Demand
While the SPDR gold trust holdings have dropped another eight metric
tonnes this month, China’s retail sales have risen 12.1% year-on-year in
the Golden Week and the gold sales in some cities have jumped 40% to
100% from a year ago. With the Indian Diwali festival coming up on 23
October and the wedding season approaching, the gold prices should be
supported in the near-term.
What to Monitor
We will monitor Draghi’s speech at the IMF Annual Meetings on 11
October. We will also watch the September China trade data on 13
October, the August Eurozone industrial production data on 14 October,
the U.S. Beige Book, the September China inflation, and the U.S.
September retail sales on 15 October, the September U.S. industrial
production data on 16 October as well as the Fed Chair’s speech and the
September U.S. housing starts on 17 October.
This story is provided by Sharps Pixley, for more information and content please visit: www.SharpsPixley.com
10 Oct 2014 | Categories: Gold
