Gold Plunged Below the April Trough after the June FOMC meeting
After the June 18-19 FOMC meeting, the U.S. Fed has injected more fear
than calm into the gold market. The U.S. Comex gold futures inched up
0.52 percent on Wednesday after the Fed has released its FOMC statement.
On Thursday, the gold futures plunged as much as 7.18 percent to
$1,275.40 before finishing the day at $1,286.20, the lowest level since
September 2010. During Asian Friday morning, the gold futures have
rebounded slightly to around $1,290. Year-to-date, the gold futures
have declined about 23 percent. The CRB Commodities Index also tumbled
2.91 percent on Thursday, the largest drop in two months. The Dollar
Index rebounded 1.62 percent in the past two days and ended at 81.915 on
Thursday. The S&P 500 index and the Euro Stoxx 50 index fell close
to 4 percent in two days in response to the FOMC meeting.
What’s New from the Fed?
Ben Bernanke said that if the economy moves in line with the Fed’s
forecast, then the Fed thinks it is appropriate to reduce the pace of
the bond purchases later in 2013. The Fed will continue to taper and
finish the asset purchases by mid-2014, if the economy is performing as
expected. To actually taper the QE3, the Fed needs to be fairly
confident that the Q4 GDP in the U.S. will reach 2.3 to 2.6 percent, and
the unemployment rate to drop decidedly below 7.2 to 7.3 percent. The
inflation rate is expected to stay well below the 2 percent target. The
U.S. has been growing at slightly above 2 percent in the first half of
2013 while the unemployment rate is currently at 7.6 percent. The Fed
has implicitly set a new target of 7 percent unemployment rate to reduce
the asset purchases. The Fed also revised down slightly the GDP growth
and the unemployment rate for 2013.
Gold Sentiment Hammered Further
The stronger dollar, the rising U.S. bond yield, the
weaker-than-expected China May flash manufacturing PMI, the general
commodities sell-off, a subdue inflation rate, and the continued outflow
from gold-backed ETPs have pushed down gold’s sentiment further. In
Bloomberg’s weekly survey, the number of gold bears reaches the highest
since January 2010. In the next few days, the market will closely watch
the actions of the physical buyers. According to Bloomberg, the
gold-backed ETPs have dropped 525 metric tons year-to-date to 2,106
metric tons, compared to a rise of 275 metric tons last year. As gold
prices in China have dropped continuously in the past week, volume
traded in the Shanghai Gold Exchange has climbed to a one-month high on
Wednesday. The gold futures’ RSI has plunged below 25, an oversold
What to Watch Next Week
Apart from watching the physical demand response, we will also watch
Germany’s June IFO business climate index on 24 June, the June U.S.
consumer confidence index and the May U.S. new home sales on 25 June as
well as the June Germany unemployment change, the May CPI and the
industrial production in Japan on 27 June.
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21 Jun 2013
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