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Gold Market Liking the Hint of Inflation

The U.S. Comex gold futures rebounded 0.15% on Thursday after falling in the previous two days. Week-to-date, the gold futures dropped 0.54% to end at $1,240.20. During Asia Friday morning, the prices traded up to $1,244. While the Euro Stoxx 50 Index rallied 1.61% this week, the S&P 500 Index rose only 0.21%. The Dollar Index rebounded 0.31% this week after falling 0.16% last week. Month-to-date, the gold futures rallied strongly by 3.15% while the S&P 500 Index is unchanged and the Euro Stoxx 50 Index rose 1.45%.

The Fed Saw no Bubble
The S&P 500 Index hit an all-time high on 15 January. The EPS of the U.S. stock market is at a record high, and the balance sheet of the U.S. Fed exceeds $4 trillion. Nevertheless, in his speech on Thursday, the outgoing Fed Bernanke believed there are currently no asset price bubbles and said that QE works. With the yearly CPI ending at 1.5% for 2013 and the core CPI rising at 0.1% in December 2013, Bernanke reiterated that he did not see any hyperinflation risk. Gold prices however reacted positively on Thursday as inflation is back on the investor’s radar screen. The December CPI in the U.S. rose 0.3%, compared to zero percent in November. With the weekly jobless claims coming in better than expected, the Philly Fed Business Outlook Index better than expected, and inflation rising, the gold market is preoccupied with the next FOMC meeting on 28-9 January over the pace of the QE unwind.

Investors’ and Physical Buyer Positioning
During the week ending 7 January, the managed money net combined gold positions rose 18% to 40,229 contracts, helped by a 2.7% jump in the long contracts and a 5.3% reduction in the short positions. From the recent peak, the number of short contracts has declined about 14%. While the ETF holdings have dropped 21 tons year-to-date, the premium on bullion paid by Chinese buyers rose to $31.21 per ounce on 7 January compared to an average premium of $18.72 last year according to Bloomberg.

What to Watch
The market will likely monitor China’s Q4 GDP, December industrial production, fixed investments and retail sales on 20 January, the UK monetary policy meeting on 22 January as well as the January flash PMI in China, E18, and the U.S. on 23 January.

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17 Jan 2014 | Categories: Gold

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