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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

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