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Gold Prices Drop with Supply Fear despite Equities Sell-Off

The U.S. Comex gold futures dropped about 2.3% in the past two days to end at $1,194.30 on Tuesday, falling 0.67% for the year. The S&P 500 Index and the Euro Stoxx 50 Index declined 1.47% and 0.49% respectively so far this week. The crude oil futures tumbled over three percent week-to-Tuesday and are trading at around $54.6 during Asia Wednesday morning, a further two percent drop. The ten-year U.S. Treasury has dropped to 2.059% and the ten-year German Bund yield has fallen to 0.594% on Tuesday. The VIX, the fear index, has risen from 11.82% on 5 December to 23.57% on Tuesday, indicating that the global financial markets are getting more stressed and uncertain.

Contrasting U.S. and the Rest of the World
China’s December flash HSBC PMI fell to 49.5, which indicates a contraction, from 50 in November. In Europe, while the Eurozone composite PMI rose from 51.1 in November to 51.7 in December, the activities in the core countries of Germany and France still disappoint, and the Eurozone is expected to grow only 0.1% in Q4. On the other hand, the U.S. data continue to prove strength, with the gold market getting concerned whether the Fed will drop the language of keeping the interest rates low for a considerable period of time to signal a rise in interest rates soon next year. There is also doubt that the Russian central bank can arrest the fall in the Ruble even with the interest rate hike to 17% under the backdrop of continued economic sanctions and the oil prices falling 40% this year.

Russian Crises and Gold Prices
The fear of the Russian central bank selling down their gold reserves to resurrect the Ruble and any changes from the FOMC have prompted more outflow from the SPDR Gold Trust, whose holdings have fallen to the lowest level since early December in 2009. Nevertheless, physical gold demand will pick up before the Chinese New Year, which will fall on 19 February, 2015 while regulatory changes in India have led to a rise in gold imports to about 200 tonnes in December from 100 tonnes in November.

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17 Dec 2014 | Categories: Gold

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