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Gold Enjoying a Rebound as Global Equities Cracked

On Thursday, the Comex gold futures had the largest percentage jump since the end of April, rising 2.23% to $1,152.80. Week-to-date, the gold futures have risen 3.63% compared to -2.63% for the S&P 500 Index and -3.94% for the Euro Stoxx 50 Index. In the same period, the Dollar Index has dropped 0.56% to 95.98 and the crude oil futures have plunged 3.20% to $41.14. This week, the U.S. ten-year Treasury yield fell 13bp to 2.068% on Thursday while the ten-year German Bund yield fell 8bp to 0.58%. The VIX index jumped from 12.83% at the end of last week to 19.14% on Thursday.

Global Stock Rout
While the U.S. July existing home sales rose to an annualized rate of 5.59 million with the median home price rising 5.6% year-on-year, the FOMC minutes released this week revealed an indecisive Fed in terms of raising rates in September. That was before the Chinese Renminbi and other Asian currencies devalued and the crude oil prices plunged over 12% since the end of July. The developed market stocks have fallen 3.79% since China depreciated its daily currency fix on 11 August while the developing market stocks have tumbled 6.39%. The August preliminary Caixin PMI in China fell to 47.1 from 47.8 previously and 48.2 expected, triggering losses in the Asian equity markets of around two percent across the board on Friday.

Impact on Gold
According to Bloomberg, the probability of a rate hike in September has dropped to 32% during Asian Friday morning from close to 50% in the beginning of the week while the gold futures have risen another 0.8% on Friday. The Fed’s favourite gauge of future inflation fell to 1.9035% as the falling energy prices and the rising dollar have dampened traders’ inflation forecasts. That is good news for gold. After breaking the $1,160 level, gold’s momentum may carry it towards $1,190, likely gold’s best month since January this year.

What to Monitor
We will monitor the Eurozone August flash PMI on 21 August, Germany’s August IFO business climate on 25 August, the July U.S. durable goods orders on 26 August, Japan’s July inflation rate on 27 August as well as the July U.S. core PCE price index on 28 August.

 

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21 Aug 2015

About the author

Kelly Smith

Kelly was formerly a freelance writer with experience in covering the financial markets. She has been contributing content to Sharps Pixley for the last year and is a key member of our team.

e: kelly.smith@sharpspixley.com

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