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Gold Bounces as Geopolitical Risks Dominate the Fear from Rates Rise

Thursday, 17 July, was an unforgiving day, said Stratfor, a geopolitical intelligence firm. On Thursday, the U.S. Comex gold futures breached the $1,325 level two times first on the news that a Malaysian passenger jet was shot down by the pro-Russia Ukrainian rebels and that Gaza was invaded by Israel’s troops and tanks. Still the gold futures are heading for the first weekly loss after six weeks of gains. The S&P 500 Index declined 1.18% on Thursday and 0.48% for the week-to-Thursday while the Euro Stoxx 50 Index dropped 1.41% on Thursday and was flat for the week. The U.S. ten-year government bond yield dropped 7bp this week to end at 2.4458% on Thursday while the Dollar Index rose 0.40% this week to 80.505 on Thursday.

Conflicts versus Cooperation
Turnover in the gold market jumped about 25% on Thursday over its 30-day average according to Reuters as the investors and traders focus on the geopolitical tensions in Ukraine-Russia, Israel-Gaza, and also the U.S. and the European sanctions on fund raising for the top banks, oil, and gas and defense companies in Russia. On the other hand, Brazil, China, India, Russia, and South Africa formed a $50 billion new development bank (BRICS bank) and pulled together $100 billion of their foreign exchange reserves to help member countries in balance of payment crises, an alternative to the IMF and the World Bank financing. 

Investors’ Positioning
The managed gold net combined long positions rose 5.4% during the week of 8 July, helped by the reduction of the net short positions of 11.5%. The speculators have closed their short positions for five consecutive weeks. In India, the gold imports jumped 65% in June as the Indian central bank allowed more gold imports starting in Q1. However, the government has not cut the import tax on gold in its latest budget.

What to Watch
We will monitor the June CPI in the U.S. on 22 July, the U.K. July MPC minutes on 23 July, China’s July flash HSBC manufacturing PMI index, the Eurozone July flash PMI indices, the U.S. July flash PMI index, and Japan’s June inflation rate on 24 July as well as the July Germany IFO business climate index on 25 July.

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18 Jul 2014 | Categories: Gold

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