Gold Price Volatility Continues to Decline as Economic Expectations Weaken
In the past two days, the U.S. Comex gold futures have been flat and
ended at $1,295 on Thursday while the S&P 500 Index has jumped 1.08%
and the Euro Stoxx 50 Index has risen 0.81%. During this week, the
Dollar Index has inched up 0.26% to 80.254 while the U.S. ten-year
government bond yield has climbed three basis points to 2.5517%. This
year, the 30-day volatility for the gold futures has declined from 20%
at the end of last year to about 12% currently.
Economic Outlook Not So Bullish
With the latest weekly unemployment claims in the U.S. climbing by more
than forecast to 326,000, the May Bloomberg Economic Expectations Index
falling to 42.5 from 48 in April, and the real hourly wages dropping 0.3
percent in April, the U.S. consumers are getting more worried on the
outlook. At the same time, the latest FOMC minutes revealed that the
Fed is comfortable with the inflation outlook and will be very cautious
before raising interest rates. In Europe, the ECB is expected to ease
monetary policy in the 5 June meeting as inflation is too low and
economic growth is too slow at 0.2 percent in Q1. In China, the May
preliminary PMI was better than expected at 49.7 although the
manufacturing gauge has been in contraction for five consecutive months.
Positive Catalysts in the East
According to a recent Bloomberg/CME Precious Metals Conference, the East
holds the key to gold’s outlook. With China printing its money faster
than mining its gold, consumers will continue to demand gold to protect
them against inflation. In India, the government has just authorized
seven more private agencies to import gold, thus easing gold import
restrictions, which will lead to lower premiums and a rise in gold
demand as the wedding and festive seasons will start in August. At the
same time, the top 30 gold miners project a 0.7% decline in their
production in 2014.
What We Are Watching
We will monitor Ukraine’s 25 May presidential vote, the U.S. April
durable goods orders and March housing prices on 27 May, the U.S. Q1 GDP
second release and Japan April CPI and industrial production on 29 May,
the Philadelphia Fed President Plosser’s (FOMC voter) speech and the
April U.S. Core PCE Price Index on 30 May.
23 May 2014 | Categories: Gold