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Gold Prices: Time for a Bounce?

The U.S. Comex gold futures fell 0.48% last week and dropped a further 0.38% this week to $1,153.50 on Tuesday. The implied volatility of the gold futures has been falling from 21% in January to 11.5% currently in line with the decline in prices. After the Greek referendum, the S&P 500 Index and the Euro Stoxx 50 Index rose 1.57% and 2.22% respectively while the crude oil futures rose 0.57%. The ten-year German Bund yield fell 6bp this week to 0.834% and the ten-year U.S. Treasury bond yield is flat this week at 2.401%. The Dollar Index has risen 2.72% to 96.643 on Tuesday compared to the recent low on 18 June.

No Debt Relief for Greece Still
On Wednesday, the Greek parliament will vote for the new deal that was struck with the European lenders that includes pension cuts and higher sales taxes in return for 85 billion Euros. However, the IMF states that Greece now needs a bigger amount of debt relief than anticipated and that Greece would likely need additional financing. The agreed bailout package is unlikely to resolve the Greek debt crisis. In the U.S., the June retail sales fell 0.3% compared to an expected positive 0.3%, causing several economists to mark down their Q2 GDP estimates. In China, the recent economic data are more promising, showing the stimulus measures are beginning to work. China’s Q2 GDP rose seven percent, beating the expectation of 6.8%. June’s industrial production grew 6.8%, the first half fixed assets investment rose 11.4%, and the June retail sales jumped 10.6%, all beating expectations.

Speculators’ Positioning
The CFTC reported that the speculators have slashed the net combined gold positions to 7,574 contracts during the week of 7 July, the lowest level since at least 2006. The net combined long positions dropped 3.5% while the net combined short positions jumped to an all-time high since at least June 2006. The gold futures have likely reflected plenty of bad news in the short-term. Weaker U.S. economic data, a weaker dollar, and stronger physical demand from Asia are potential catalysts to reboot the gold prices.

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15 Jul 2015 | Categories: Gold

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