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Gold Prices Suffer When Stocks Rebound on Growth Data

After reaching a recent high of $1,255.60 on 21 October, the U.S. Comex gold futures suffered a decline of 1.81% in the past two days to finish at $1,229.10 on Thursday. Week-to-date, the gold futures have fallen 0.80% while the S&P 500 Index has surged 3.41% and the Euro Stoxx 50 Index has climbed 2.87%. The Dollar Index has also rebounded 0.86% this week to 85.843. The crude oil futures have bounced off the $80 level, ending at $82.09 on Thursday. The U.S. ten-year Treasury yield climbed 8bp this week to 2.271% while the German ten-year Bund yield climbed 1bp week-to-Thursday to 0.90%.

The U.S. and Euro-Area Growth Uptick
The global stock markets have regained footing when the Euro-area factory PMI rose 0.4 point to 50.7 in October versus an expected 49.9, which would have indicated a contraction. The October Euro-area composite flash PMI reached 52.2 versus an expected 51.5, led by a rebound in Germany’s factory data. Still, the ECB has begun buying covered bonds on 20 October and will buy asset-backed securities before year-end. The U.S. September Leading Index rose 0.8% versus 0.2% in the prior month while the latest weekly jobless claims fell to 281,000, a level lower that the lowest point in 2006. The October China flash HSBC manufacturing PMI reached 50.4 versus an expected 50.2. The U.S. PCE price index rose 1.5% in September and is not expected to rise above two percent until 2015 according to the IMF, dampening the safe haven demand for gold.

U.S. and China Gold Demand
The U.S. SPDR gold trust holdings fell 48.35 metric tons this year and 11 metric tons alone this week to 749.87 metric tons as of 23 October, the lowest level since November 2008. In contrast, China has announced in the 2014 China Gold yearbook that the wholesale gold demand reached 2,199 tonnes last year with imports at 1,524 tonnes, defying many analysts’ expectations. According to Mineweb, based on the China’s Shanghai Gold Exchange weekly withdrawal data, this year’s gold demand is likely to fall between 1,900 and 2,000 tonnes, a respectable figure.

What to Watch
We will monitor the October Germany IFO business climate index and the September Eurozone lending to the private sector on 27 October, the U.S. September durable goods orders, the U.S. October consumer confidence index, and the September Japan industrial production data on 28 October, the October FOMC rate decision on 29 October, the October Germany unemployment change, the U.S. preliminary Q3 GDP and consumer spending, and the Japan September CPI data on 30 October as well as the Eurozone September unemployment rate and the U.S. PCE price index on 31 October.

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24 Oct 2014 | Categories: Gold

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