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Gold Approaches 10% Higher in the First Half

The U.S. Comex gold futures have fallen about four dollars to $1,317 on Thursday but were trading up at $1,320 during Friday Asia morning. The gold prices will likely finish at least five percent higher for June and about ten percent higher for the first half. The S&P 500 Index climbed 0.39% while the Euro Stoxx 50 Index fell 1.57% and the CRB Commodities Index was flat in the past two days. The U.S. ten-year government bond yield fell about 8bp this week to 2.529% on Thursday while the Dollar Index fell 0.19% to 80.22.

U.S. Data and Japanese Inflation
The recent U.S. economic data reflects an uneven recovery path. The Q1 U.S. GDP fell an annualized 2.9% while the consumer spending climbed one percent, the weakest increase since the end of 2009. The May durable goods orders fell one percent compared to an expected zero percent while the latest initial jobless claims were 2,000 higher than expected. The year-on-year core inflation in Q1 rose as expected at 1.2%. While the weaker economic data have pleased the gold market, gold prices reacted negatively to the St. Louis Fed Governor’s statement on Thursday that he preferred that the interest rates be raised in Q1 2015. In Japan, the Prime Minister has announced the end of deflation while the May CPI jumped 3.7%, the most since 1982, due to the utility fees increase and sales-tax hike. The BOJ has refrained from adding to stimulus despite the fact that wages are still falling in Japan.

Chinese Gold Imports to Fall in the Short-Term
The Chinese national auditor has recently found that gold has been pledged multiple times in about $15 billion of financing deals. The authority clamp-down on gold use in financing will likely slow down Chinese gold imports from Hong Kong in the short-run, which have already fallen 20% in May from April. Still, both the China Gold Association and the World Gold Council expect the Chinese gold consumption to be above 1,000 metric tons in 2014 due to rising incomes and the need for insurance.

What to Watch
We will monitor the June Chinese NBS manufacturing PMI index, the Eurozone June final manufacturing index, and the U.S. June ISM manufacturing index on 1 July as well as the ECB interest rate announcement and the press conference, the U.S. June non-farm payrolls, and the U.S. June unemployment rate on 3 July.

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27 Jun 2014 | Categories: Gold

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