Gold Prices Reacted to Rebounding Dollar and Equities and Subdue Physical Demand
Tuesday after falling 2.09% last week, the first weekly loss after six weeks of gains. The Dollar Index has risen 0.31% to 80.79 on Tuesday after jumping 0.42% last week. The Euro Dollar reached the lowest level since November 2013 at 1.3466 on Tuesday. So far this week, the S&P 500 Index and the Euro Stoxx 50 Index have advanced 0.27% and 0.79% respectively. The ten-year U.S. government bond yield has stayed below 2.50% for the fourth day.
U.S. Economy Gaining Strength while Inflation under Control
The U.S. June existing home sales rose faster than expected to an annual rate of 5.04 million while the U.S. June inflation was lower at 0.3% for the month and steady at 2.1% year-on-year. The rebound in the U.S. economy with little price pressure propels the U.S. Dollar to an eight-month high against the Euro and the gold futures to drop 0.58% on Tuesday. Divergences in the labour market performance of the four key markets are showing more clearly. The unemployment rate continues to drop in the U.S. and the U.K. with the forward markets in both countries reflecting higher future bond rates. In Europe, the May unemployment rate was still at 11.6%. In Japan, the regular wages dropped 0.3% in April, the 23rd month of monthly decline.
Gold Sentiment Changes
The managed money net total combined gold positions dropped 8.5% to 131,971 contracts during the week of 15 July, led by a 32.2% jump in the number of short contracts. While geopolitical tensions have provided some support to the gold prices recently, in a recent poll by Reuters, the traders and analysts expect the gold prices to turn down from here as they believe that gold will average $1,277 for 2014. In the first seven months of this year, spot gold prices average around $1,293. Many are watching the physical demand in Asia, which has remained subdue this year. According to the China Gold Association, China’s H1 gold consumption has fallen 19% to 569.45 tons driven by the fall in the gold bar demand.
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