Gold Near-term Swing: It is all about the Dollar
The U.S. Comex gold futures declined 0.48% to $1,284.60 on Thursday
after rebounding 0.84% on Wednesday from a five-day decline. While the
gold futures have declined 0.71% week-to-Thursday, the S&P 500 Index
and the Euro Stoxx 50 Index climbed 1.71% and 1.13% respectively. The
Dollar Index has jumped 0.37% this week to 80.475 on Thursday while the
U.S. 10-year government bond yield has spiked almost 8bp to 2.7972% in
the same period.
U.S. Weather Effect Waning
As the U.S. March manufacturing ISM has grown faster than expected, the
March services ISM has also jumped to 53.1 from 51.6 in February,
indicating that the hiring activity is returning to normal after the bad
weather conditions have passed. Even though the ECB maintained its
benchmark interest rate on Thursday, the governor has opened the door
for further monetary stimulus and the use of unconventional tools to
prevent deflation. The March inflation rate in the Eurozone reached a
four-year low at 0.5% year-on-year. The Euro/Dollar declined 0.34% on
the ECB news as the Dollar strengthened and the gold prices fell on
Thursday. The improvement in economic data in the U.S. will lend
support to the Fed stepping on the gas pedal to taper. The market is
clearly focusing on Friday’s U.S. payroll report for further signs of
economic recovery.
Investors’ Positioning
In early April, the gold-backed ETP holdings dropped about seven metric
tons as the sentiment of gold has turned subdued. The latest weekly
CFTC data have shown that the net total managed gold position has
declined 13.28%, led by an almost ten percent drop in the long position
and a 27% rise in the short position.
What to Watch
We will monitor Germany’s February industrial production and the ECB
annual bulletin on 7 April, the Minneapolis Fed Governor’s speech on 8
April, the March FOMC minutes on 9 April, the Bank of England interest
rate and asset purchase decisions, China’s March trade data and March M2
growth on 10 April as well as China’s March inflation data on 11 April.
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