Gold Helped by Weaker Dollar and Higher Chinese Demand; Watch for the U.S. Dollar Bottoming
After losing for six consecutive days, the gold futures rebounded 2.14 percent in the past two days to end at $1,310.10 on Thursday. The prices jumped a further 0.3 percent during Asia Friday morning. On the contrary, the Dollar Index has dropped five days in a row, falling 1.14 percent this week, helped by the 2.35 percent appreciation of Yen against the Dollar. In the past two days, the S&P 500 Index was flat while the Euro Stoxx 50 Index rose 0.94 percent.
Demand Rebound in China and Bullish U.S. Data
The July China exports jumped 5.1 percent year-on-year versus the expected two percent while the imports surged 10.9 percent versus the expected one percent. The trade balance declined to $17.82 billion from $27.12 billion in June. Bloomberg highlighted that the exports to the U.S. and the EU markets have increased the first time since February. The higher than expected import growth indicates a Chinese domestic demand recovery, which will bode well for gold demand. The stronger than expected PMI data from the U.S. and Europe will likely support Chinese trade data going forward. Bloomberg also reported that the July Consumer Comfort Index in the U.S. rose to a five-year high while the four-week moving average of the jobless claims reached 335,500, the lowest level since November 2007.
After reaching a high of 84.58 on 9 July, the Dollar Index has lost 4.26 percent. Year-to-date, the Dollar Index has risen 1.5 percent. However, the 30-day historical volatility of the index has more than doubled from 4.14 percent at the end of 2012 to 9.20 percent currently, indicating that the market has been swayed by the mixed messages coming out of the FOMC meetings. The dollar weakness has led the traders to seek alternatives such as gold. Nevertheless, sentiment towards gold remains weak as the gold-backed ETP holdings fell to a new low since May 2010 on 7 August. However, ETP holdings in countries such as Japan and India have stayed constant when gold prices plunged this year, signifying that Asia and emerging markets will help shape the future gold demand.
What to Watch
This Friday, we will watch the July China inflation and industrial production data. We will also monitor the June E17 industrial production and the July U.S. retail sales on 13 August, the BOE bank rate vote and the preliminary Q2 GDP of E17 on 14 August, the July U.S. industrial production and the U.S. July CPI on 15 August as well as the U.S. July housing starts on 16 August.