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Gold Demand - Not so Hot, Not so Cold

The U.S. Comex gold futures rallied 0.49% on Tuesday and reached a high of $1,290.60 intra-day before settling at $1,284.30 at the end of the day. The gold futures lost two percent last week. This month, the futures have risen 0.23% compared to a drop of 3.08% in July. The Dollar Index rose 0.41% to 82.685 after rising 1.12% last week. Month-to-date, the Dollar Index has returned 1.51% compared to 3.78% for the S&P 500 Index and 2.66% for the Euro Stoxx 50 Index. The S&P 500 Index has reached a record high on 26 August at 2000.02. The U.S. ten-year government bond yield finished at 2.397% on Tuesday while the German ten-year Bund yield ended at a record low of 0.939%.

Asset Prices Reacting to Central Bankers’ Words
As pointed out by the Fed Chairman Janet Yellen, how much slack there is in the U.S. labour market is still up for debate. The Fed uses a Labour Market Conditions Index, which consists of 19 factors. The undertone is that the underuse of the labour force is still big although a few Fed governors have been saying that the interest rates will rise sooner than expected. The ECB governor surprised the market by saying for the first time that both the fiscal and monetary policies are necessary to stimulate aggregate demand, which means there is room for more asset purchases and possibly QE and more fiscal policy flexibility from the governments. With interest rates expected to stay low for a longer period of time, securities and gold prices have both risen after the Jackson Hole Symposium. The U.S. equities are further fuelled by the jump in the U.S. July durable goods orders by 22.6% compared to 2.7% in June and the rise of the August Consumer Confidence Index to 92.4 from 90.3 in July.

Demand for Gold
The CFTC reported that the net combined long gold positions have fallen 12.56% to 116,916 contracts, caused by a fall of 8.52% in the long contracts and a jump of 17.46% in the short contracts. The short positions, however, have fallen from a high of 70,000 contracts to 24,442 contracts currently, reflecting a weaker price support at this time. The gold-backed ETPs have risen 5.8 tonnes for the week ending 22 August and have dropped almost 40 tonnes year-to-date according to Barclays. Chinese net gold imports from Hong Kong have fallen to 22.11 tonnes, the lowest level since June 2011, likely because gold now enters China through Beijing and Shanghai. The Shanghai gold premium has been running at three to seven dollars over the London price compared to a discount a few months ago. Import from China is still expected to reach 1,000 tonnes in 2014 while that for India will be between 850 to 950 tonnes according to the World Gold Council.

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27 Aug 2014 | Categories: Gold

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