Gold Rally Stalled Although European Banks Not Out of the Woods
The U.S. Comex gold futures started the week on a weaker tone, falling
0.65 percent in the past two days. While the S&P 500 index
rebounded 0.65 percent this week, the Euro Stoxx 50 index fell 1.51
percent after falling in the past three consecutive weeks. The Dollar
Index rose this week by 0.61 percent, a mirror image of the gold
futures.
Gold Investors Took Some Bets Off on Latest Cyprus Developments
The market breathed a sigh of relief when the Cyprus government agreed
to shut down its second largest bank, the government-owned Cyprus
Popular Bank, in exchange for the Euro 10 billion aid. Depositors with
EUR 100,000 or below would not be affected while up to 40 percent of the
uninsured depositors in the closed bank would likely be impacted.
Market is still waiting to see what type of currency controls the
government will impose. The banks are scheduled to be re-opened on 28
March. A currency control for a country which does not have its own
currency is a financial novelty according to Bloomberg. Gold price sold
off as safe-haven demand decreased after the bailout for Cyprus was
agreed. However, banking risks in a no-growth Europe have by no means
gone away and could provide some support for gold prices.
Gold Reacting to Stronger U.S. Data
Gold price has also dropped in response to the U.S. stronger durable
goods order, which rose 5.7 percent in February, compared to a 3.8
percent drop in January. The U.S. Case-Shiller residential prices index
jumped a higher-than-expected 8.08 percent in January after a 6.84
percent jump in December. The Dallas Fed governor (a non-voter) said on
26 March that he favoured dialing back the asset purchases program
given the improved tone and growth in the economy.
Hedge Funds Favouring More Gold
According to the CFTC’s latest weekly data, the speculators increased
their gold net non-commercial positions to 127,996 contracts, the most
since mid-February while speculators raised their bearish bets on copper
on the back of the European growth concerns. Barclays noted that even
though gold prices have recovered in a short-covering rally, the
headwinds remain due to the weak gold-backed ETP flows, a stronger
dollar and a subdue physical demand backdrop given the firmer gold
prices.
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27 Mar 2013 | Categories: Gold