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Gold Holding its Ground as ECB Disappoints and Protests and Assaults Rise

The U.S. Comex gold futures rebounded 0.38% to $1,215.10 during the first two days of October while the Dollar Index retreated 0.39% to 85.601. The stock markets tumbled with the S&P 500 Index falling 1.31% and the Euro Stoxx 50 Index dropping 3.70% in the past two days. The U.S. ten-year government bond yield rallied about 10bp to 2.425% this week while the ten-year German Bund yield fell about 7bp to 0.90%. The VIX Index surged from 14.85 at the end of last week to 16.16 on Thursday.

Uneven Growth, Protests, and ECB
The U.S. manufacturing ISM index was 56.6 in September, capping the highest three-month average since July 2011. The September China manufacturing PMI held its ground at 51.1 while the Eurozone manufacturing PMI fell 0.4 in September to 50.3. The Hong Kong pro-democracy protests are likely to continue with the Chief Executive not resigning and the Beijing government not backing down. The ISIS insurgents advanced into a Syrian border town. The assaults and protests and their possible spillover effects have helped to stabilize gold prices. Meanwhile, the ECB announced that they would start buying covered bonds and asset-backed securities this quarter but did not mention any target or give any hint of sovereign bond purchases, disappointing the stock markets and helping the Euro/Dollar to rebound temporarily. Weaknesses in the European economies and the global equity markets as well as the geopolitical risks will likely support gold prices in the near term.

Commodities ETF Outflow and Surging Coins and Bars Demand
According to Bloomberg, investors sold about $1 billion of commodities ETFs in September as gold-backed ETPs outflow also accelerated. However, as gold prices tumbled, the demand of gold coins and bars in the U.S. increased the most this year during September while the sales of Perth Mint’s gold coins and bars in September jumped the most since October 2013.

What to Monitor
The market will closely watch the September U.S. non-farm payrolls and the unemployment rate this Friday. Next week, we will monitor the August industrial production of Germany and the U.S. on 7 October, the release of the September FOMC minutes on 8 October, the ECB President’s speech and the Bank of England interest rate and asset purchase decisions on 9 October as well as the China aggregate financing and M2 growth in September and the August Italy and France industrial production on 10 October. Three FOMC voters will also make speeches throughout next week.

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03 Oct 2014 | Categories: Gold

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