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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.

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10 Oct 2014 | Categories: Gold

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