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Gold Prices in a Tight Range as the World Growth Slows

The U.S. Comex gold futures fell $11 this week to $1,204.10 and rebounded $2.5 on Friday morning in Asia while the Dollar Index rose 2.28% this week to $95.255. The S&P 500 Index and the Euro Stoxx 50 Index rose 0.43% and 3.59% respectively week-to-Thursday. The crude oil futures also went up 1.73% this week. The U.S. ten-year government bond yield rallied about 10bp to 2.19% from the recent peak reached last Wednesday and the German ten-year Bund yield also fell 9bp during the same period to 0.63% on Thursday.

The World Loses Growth Momentum
While the Euro Area grew 0.4% in the first quarter, the growth has softened in May and likely in June led by Germany, which saw its Markit manufacturing index falling to a three-month low in May to 51.4. China’s May manufacturing PMI was 49.1 in May, the third month in contraction. The Chinese government is loosening up its fiscal policy by stepping up infrastructure spending to buffer the slowdown in the property market and other investments. More interest rate cuts are to be expected. On Wednesday, the U.S. Fed FOMC minutes showed that most of the members did not want an interest rate hike in June.

Peak Gold in 2015?
With the production of gold slowing down in the recent years, Polymetal International’s CEO predicted that the gold output would actually decline in 2016 with many analysts calling 2015 the year of the “Peak Gold”. The weaker producers would have to close down mines, eventually supporting gold prices.

What to Watch
We will monitor the Richmond Fed President’s speech, the U.S. April durable goods order, and the U.S. April new home sales on 26 May, the San Francisco Fed President’s speech and the U.S. initial jobless claims on 28 May as well as the Eurozone April lending to the private sector, the U.S. second release of the Q1 GDP and consumer spending, the Japan April inflation data, and the Japan April industrial production.

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22 May 2015 | Categories: Gold

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