Gold is Struggling against Rising Interest in Rising Equities
After rising for two consecutive weeks, the U.S. Comex gold futures
fell 1 percent week-to-Tuesday to $1,448.80 although prices touched
$1,458 on Wednesday Asian morning. The story of the week is still
rising equities, with the S&P 500 index climbing 0.71 percent after
rising 2.03 percent last week and the Euro Stoxx 50 index rising 0.2
percent after surging 2.99 percent last week. So far in May, the
S&P 500 index, the Euro Stoxx 50 index and the MSCI World index have
jumped 1.78 percent, 2.10 percent and 1.08 percent respectively. The
gold futures have slipped 1.58 percent this month while the Dollar Index
has risen 0.62 percent.
Better Data from the U.S., Europe and China
Last Friday, the U.S. reported a higher-than-expected rise in nonfarm
payrolls of 165,000 in April. The unemployment rate also inched down
0.1 percent to 7.5 percent in April. In Europe, the ECB governor stands
ready to cut interest rates again, paying close attention to all the
economic data in the next few weeks. The ECB predicts the EU-17
economies will shrink 0.4 percent in 2013. However, Germany’s March
factory orders surprisingly jumped 2.2 percent against a predicted drop
of 0.5 percent, indicating a recovery is taking place. China reported a
larger than expected jump in exports of 14.7 percent in April although
several economists already pointed out that some capital flows may have
been disguised as trade flows leading to the inflated exports numbers.
Nevertheless, imports rose 16.8% year-on-year, reflecting a pretty
robust domestic demand picture. In fact, Hong Kong has just reported
that China’s gold imports from Hong Kong reached a record high of 223.52
metric tons in March before the large sell-off in gold in April. The
China Gold Association stated that China is currently short of gold
jewellery inventory after gold purchases surged in April.
Fund Holdings
Bloomberg reported that for the week ending 30 April, speculators in
gold increased their net-long positions in options and futures by 19
percent while they decreased their net-short positions by 9.2 percent.
However, the net-short positions are still more than three times the
average since the data started in 2006. The gold-backed ETP holdings
dropped further on Monday to 2,254.68 metric tons, after a record fall
in April and a peak in December 2012. Given the reduction of tail-risk
in Europe, the rising labour market in the U.S. and the low inflation
rate, investors prefer equities to gold in the near-term. Nevertheless,
as the World Gold Council pointed out, gold still has a place in
investors’ portfolios as a hedge against the consequences of the
on-going global quantitative easing.
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08 May 2013 | Categories: Gold