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Gold Holding Above $1,200 as Macro Uncertainties Abound

The U.S. Comex gold futures rose 0.62% on Thursday to $1,207.60 after dropping to an intra-day low of $1,197.20 on Wednesday. Week-to-date, the gold futures fell 1.59% while the S&P 500 Index was flat, the Euro Stoxx Index rose 1.17%, and the CRB Commodities Index fell 1.28%. The Dollar Index continues to be in a narrow range of 93.80 to 94.50 all week. The U.S. ten-year Treasury yield rose 6bp to 2.1142% while the German ten-year Bund yield rose 4bp this week to 0.38% on Thursday.

Macro and Political Events
The market will monitor the discussions among the finance ministers in Brussels on Friday on the Greece’s request to extend the loan agreement with fewer conditions. At the same time, the ECB plans to ask the Greek banks to lower their holdings of government bonds if the talks fail, thus putting more pressure on the Greek government. The Fed minutes released on Wednesday had a dovish tone given many Fed governors preferred not to hike interest rates prematurely as the strong dollar hurts net exports while the economic recovery is still moderate. Dealers’ expectations of a June rate hike declined from 23% a week ago to 18% after the Fed minutes release according to Bloomberg. Elsewhere in Japan, the central bank has decided not to ease monetary policy further saying that the inflation expectations have not dropped more because of the lower oil prices.

Investors’ Demand
The holdings of the largest gold-backed ETF, the SPDR Gold Trust, rose about eight percent this year by 60 metric tons to 769.46 metric tons on Wednesday, down about 30 tons since a year ago. The gold investors’ sentiments have rebounded somewhat this year given the uncertainty in the currencies, interest rates, and politics around the world. Dealers are expecting the physical demand to rise starting at the end of February when the Chinese New Year holidays end. The gold prices may jump on the positive expectations of a cut in India’s gold import duty. A lifting of the ban on consignment deals by the Indian government has also given hope to more gold imports in the coming months.

What to Monitor
We will monitor the Brussels talk among the European finance ministers on Friday. We will also watch the February Germany IFO business climate index and the January U.S. existing home sales on 23 February, the February U.S. consumer confidence index on 24 February, the Fed chair’s testimony and the February China flash manufacturing PMI on 25 February as well as the January U.S. durable goods orders and the January Japan CPI on 26 February.

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20 Feb 2015 | Categories: Gold

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