Gold Price Softened as Dollar Strength Dominated Ukraine-Russia Tensions

The U.S. Comex gold futures fell almost ten dollars in the past two days and ended at $1,284.60 on Tuesday even though Russia has been rebuilding troops in Ukraine’s border. The Dollar Index climbed 0.27% this week to 81.523 after rising 0.34% last week. The S&P 500 Index has dropped 0.25% while the Euro Stoxx 50 Index and the CRB Commodities Index were flat this week. Last week, the S&P 500 Index and the Euro Stoxx 50 Index fell 2.69% and 3.23% respectively. The U.S. ten-year government bond yield stabilized at around 2.48% on Tuesday. The VIX index surged from 12.69% on 25 July to a recent peak of 17.03% last Friday and ended at 16.87% on Tuesday.

Global Services Gauge
While last Friday’s U.S. July private payrolls were smaller than expected at 209,000 compared to 288,000 in June and the July unemployment rate inched up to 6.2%, the July ISM Services Index surged to 58.7, the highest level since December 2005. The U.K. July Services PMI rose to 59.1 compared to a forecast of 58. The July non-manufacturing PMI in China fell to 54.2 compared to 55 in June. Both the Euro Area Services PMI Index and the Composite PMI were lower than expected although the Services PMI was close to the peak level in three years. This week, the market will focus on the four major central banks’ rate decisions including the ECB, the Bank of England, and the Bank of Japan.

Investors’ Positioning
The managed money net combined gold positions fell 10.31% to 122,092 contracts during the week ending 29 July, led by a jump of 23.63% in the short contracts. In fact, the net combined long contracts fell in three consecutive weeks. In July, the holdings in the SPDR Gold Trust rose about 11 metric tons to 801.84 metric tons. Year-to-date, the holdings were up two metric tons as the investors’ hemorrhage appears to have stopped. In China, the gold volume traded in the Shanghai Gold Exchange has slowed to the lowest level since May while the bar premiums in Asia have been stalling or falling, according to Barclays. Over the longer haul, gold prices and demand are expected to be more impacted by the monetary and economic growth data than the geopolitical tensions.


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06 Aug 2014

About the author

Kelly Smith

Kelly was formerly a freelance writer with experience in covering the financial markets. She has been contributing content to Sharps Pixley for the last year and is a key member of our team.

e: kelly.smith@sharpspixley.com