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Gold Prices and the Trio of Greece, Fed, and China

The U.S. Comex gold futures fell 0.83% this week to end at $1,163.50 on Thursday, the lowest level since March. The S&P 500 Index, the Euro Stoxx 50 Index, and the crude oil futures fell 1.14%, 4.35%, and 4.53% respectively. The Dollar index rose 0.67% this week to 96.113 after rising 1.47% last week. The ten-year U.S. Treasury bond yield fell 9bp this week to 2.382% on Thursday while the ten-year German Bund yield fell 7.5bp to 0.844%.

Greece, Fed, and China
Markets are asking: what will happen to Greece in the 5 July referendum? What will the Fed do in September in light of the mixed economic data and global development? What will the Chinese stock markets do next week? Also, these events will likely impact on one another. The IMF has calculated that Greece may need a total of 50 billion Euros for debt financing and a 20-year grace period before paying back any debt, revealing how dire the Greek situation is. In the U.S., the June private payrolls increased 223,000, lower than expectation while wages stagnated and the participation rate inched down to a low of 62.6%. If Greece leaves the Euro and the financial market volatility surges, the Fed will likely push back its rate hike timing, which can support gold prices. Adding to that, the Chinese stock market has continued to decline by over 20% despite the government’s monetary easing measures and changes in the margin financing rules. As the Chinese stock prices dwindle, gold demand could rise again.

China and Gold
China wants to have a larger influence on the gold prices by having a yuan-denominated gold index by the end of 2015 to rival the “London Gold Fix.” The Shanghai Gold Exchange is already the largest physical gold trading platform in the world, and China’s demand for gold is twice the amount it produces.

What to Monitor
Many will be watching the results of the Greek referendum on 5 July and the creditors’ responses in the following week. We will also monitor the U.K. monetary policy decision and the June China inflation data on 9 July as well as the June China aggregate financing and M2 growth on 10 July.

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03 Jul 2015 | Categories: Gold, China

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