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Gold Holding onto This Year’s Gain Despite Stocks Rebound

Gold The U.S. Comex gold futures have fallen two dollars this week to $1,229.40 on Tuesday after falling seven dollars the week before. The Dollar Index has also fallen 0.37% this week to 85.408 on Tuesday after rising 0.73% in the previous week. The S&P 500 Index is now only 1.3% lower than the recent peak reached on 18 September. The Euro Stoxx 50 Index climbed 0.19% this week while the CRB Commodities Index rose 0.69%. The U.S. ten-year Treasury yield has risen 3bp in the past two days to 2.296% while the German ten-year Bund yield has fallen 1.5bp to 0.875% on Tuesday.

Worry about the Euro and Low Inflation
While the ECB stress test on the European banks showed that the capital shortfall to be Euro 25 billion as of year-end and Euro 6.35 billion currently, the market believes that the European banks still need to deleverage continuously, which means that the lending growth will be almost close to zero. The latest Germany IFO Business Climate Index has dropped to a two-year low as well. On Wednesday, the FOMC will release its statement on the monetary policy with a likely focus on the inflation being too low according to Bloomberg. The PCE index was most recently at 1.5% year-on-year. The U.S. October consumer confidence index has surprisingly risen to a seven-year high to 94.5 although the September durable goods orders have dropped 1.3% in September compared to an expected 1.5% increase.

Physical Demand Support
Barclays noted that the demand for coins and jewellery has increased between 15 to 30% in India during the Diwali festival and will continue to rise in the following wedding season. Barclays also pointed out that if the Swiss gold referendum goes through on 30 November, the annual gold purchases could amount to 300 tonnes phased over the next five years, helping to lift the floor of the gold prices normally provided by the physical market. The sentiments of gold have improved for a second week. According to the CFTC, the managed money net combined gold positions jumped almost 45% during the week of 21 October, helped by the 16% decline in the short positions.

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29 Oct 2014 | Categories: Gold

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