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Gold Prices Facing the Headwinds of a Stronger U.S. Economy

Gold jumped 2.77% this week to $1,207.7 on Thursday while the Dollar Index also inched up 0.32% in the same period to 88.639. The crude oil futures fell 0.85% on Thursday to $66.81 after a rebound earlier in the week. The oil futures are up almost one percent for the week. The S&P 500 Index rose slightly by 0.25% this week while the Euro Stoxx 50 Index dropped 1.79%. The Japanese Yen broke 120 against the Dollar on Thursday New York morning, a level last seen in 2007. The U.S. ten-year government bond yield and the German ten-year Bund yield both rose 7bp this week to 2.234% and 0.771% respectively on Thursday.

Europe Disappoints while U.S. Hums Along
As the U.S. gasoline selling price fell below two dollars (in the Oklahoma City), the Fed Beige Book also shows that the job gains are seen across many regions, led by the manufacturing and investment spending increase. Holiday sales are also looking rosy. The ECB, however, lowers its inflation forecast of the Eurozone to 0.5% in 2014 and 0.7% in 2015. It also lowers the growth rate from 1.6% for 2015 as forecasted in September to now one percent. The ECB has delayed its assessment for a sovereign QE until early next year, disappointing the market when deflation and recession are facing the Eurozone. Gold traders are also disappointed that the ECB did not specifically mention gold in its range of asset purchases. In the U.K., fiscal tightness, a weak Europe, low inflation, and a weak wage growth are likely to keep the Bank of England on hold in the interest rates.

ETF Holdings and Gold Price Volatility
As the gold price volatility has spiked to a one-year high, the global gold ETF holdings have dropped close to 40% from the peak reached at the end of 2012. However, as Reuters has reported, due to the big drop in the oil import bill as the oil prices have recently collapsed 40%, India can now afford to scrap all restrictions on gold imports, which can be a positive catalyst for gold prices. 

What to Watch
This Friday, the market will focus on the U.S. November non-farm payrolls and the unemployment rate. Next week, we will watch the China November trade data on 8 December, the China November inflation data on 10 December, the November U.S. retail sales and the ECB monthly bulletin on 11 December as well as the November China industrial production on 12 December.

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05 Dec 2014 | Categories: Gold

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