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Gold Price Rose While Europe Shook - Sharps Pixley

The U.S. Comex gold futures rebounded 0.85 percent last week after a 1.80 percent drop the week before. The gold futures inched up 0.17 percent this week to $1,673.50 on Tuesday and were down $2 since the end of last year. After rising for five consecutive weeks, the S&P 500 index is taking a breather this week, dropping 0.12 percent. The S&P has risen almost 6 percent this year - the clear winner among riskier assets. The Euro Stoxx 50 index has been much more volatile, dropping 2.17 percent this week after falling 1.24 percent last week. The index has risen only 0.91 percent this year. The Dollar Index has hardly moved, dropping 0.35 percent year-to-date.

European Tremor
The gold futures climbed 0.60 percent last Friday after the U.S. reported that 157,000 workers were added in January while the two previous months’ revisions amounted to a positive 127,000 jobs. The faster job growth may signal more inflationary pressures, which will benefit the gold price. The price continued to rise on Monday amidst renewed political concerns in Europe. The Spanish 10-year government bond yield surged about 43bp from its recent low to 5.438 percent on Monday as the market became fearful of a new election. The Italian 10-year government bond yield also rose about 34bp from its recent low. The rising popularity of the Italian Berlusconi in the election campaign and his controversial tax measures could derail the government’s austere fiscal effort.

Supportive Chinese News
China has just released 35 measures to tackle its income distribution problem. These measures aim to reduce poverty, correct income inequality, raise social spending, and increase the proportion of household income in the overall GDP. According to official data, China’s per capita disposable income rose around 13 percent in 2012. Rising income and a bigger middle class should raise the demand for gold. Economic growth in China last year has boosted gold imports into China from Hong Kong by 94 percent to 845.5 metric tons. Local analysts continue to expect the economy to recover while the central bank will purchase more gold.

India’s Central Bank to Curb Gold Import
In the meantime, Reuters reported that the Indian central bank will likely reduce India’s gold import demand by chanelling the 20,000 tonnes of gold held by households into the banking system using new gold-linked products. However, the new measures will take time to show their impact. If inflation continues to stay high in India, gold demand is unlikely to drop tremendously.

Kelly Smith
Sharps Pixley, London

06 Feb 2013 | Categories: Gold

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