Gold Reasserting Itself as the Fear Index?
The U.S. Comex gold futures bucked the trend of the broader riskier
markets and surged 1 percent to $1,726 on Thursday. Gold futures traded
further up at $1,735 during Asia open on Friday. The S&P 500 and
the Euro Stoxx 50 Index fell 3.56 percent and 2.24 percent in the past
two days while the CRB Commodities index dropped 1.78 percent. The
Euro/Dollar fell 0.69 percent this week to 1.2747 after falling 0.8
percent last week. Week-to-Thursday, gold has risen 3 percent while the
VIX spot rose 5 percent.
Safe-haven bids for gold have re-appeared as the markets immediately
turned their attention to the fiscal cliff and the European debt crises
after the U.S. election uncertainty has been removed. What exactly is
the fiscal cliff? It is a term first used by Ben Bernanke in his speech
to the Congress in February 2012, referring to the enacted legislation
causing an automatic spending cuts and tax hikes on 31 December, 2012 of
about $7 trillions over the next 10 years and about $600 billion in
2013. What’s to fear? The politics in the U.S. remains a gridlock
after the election, and if no action is taken, the U.S. Congressional
Budget Office expects a U.S. recession in the first half of 2013. In
the two months around the time the deficit-reduction deal was signed in
2011, gold price surged around 8 percent while the S&P 500 index
plunged about 14 percent.
In Europe, the ECB kept its benchmark rate at 0.75 percent on Thursday
though the ECB warns of lowering its economic forecast of the Euro zone
next month as the economic outlook, including that of Germany, is
deteriorating. Spain has still not asked for ECB to purchase its bonds
while the Euro area finance ministers will not likely to make a final
decision to release the Euro 31.5 billion of aid to Greece until
probably 26 November.
The GFMS expects that China’s gold demand will rise 1 percent to 860
tonnes in 2012, overtaking India to become the largest gold consumer in
the world. Although overall economic growth and therefore gold demand
slowed in 2012 compared to 2011, gold purchases especially in
jewelleries in the third and forth-tier cities in China will support
overall consumption.
Upcoming data and events to watch include the Chinese October industrial
production and fixed asset investment growth on 8 November, the Chinese
October exports and imports growth on 9 November, the Euro area finance
ministers meeting on 12 November and the FOMC meeting minutes and
Germany’s Q3 GDP on 14 November.
Robert Jilles
Sharps Pixley, London
www.sharpspixley.com
