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Gold Still Finding a Catalyst to Stay Above $1200

The U.S. Comex gold futures dropped to a trough of $1,141.70 during Asian Monday morning after the Swiss rejected the Gold Referendum and the OPEC decided not to cut oil production. On Monday, the gold futures rebounded 3.65% as the crude oil futures surged 4.31%. The gold futures retreated 1.54% to $1,199.40 on Tuesday and fell 0.24% for the year. The Dollar Index climbed 0.33% this week to 88.647 on Tuesday, the highest level since mid-2010. The S&P 500 Index was flat this week while the Euro Stoxx 50 Index was down 0.34% after rallying 2.45% and 4.42% respectively in November. After dropping over ten percent to $66.15 last Friday, the crude oil futures rebounded 1.1% to $66.88 on Tuesday with big swings. The U.S. ten-year government bond yield climbed 12bp this week to 2.292% while the German ten-year Bund yield rose 4bp to 0.74%.

Oil and Gold
The U.S. November ISM manufacturing index was 58.7 versus an expected 58 while that of China was in line with expectation at 50. The Eurozone November manufacturing PMI however fell to 50.1 versus an expected 50.4, and the October PPI remained negative at minus 1.3% year-over-year. Commodity prices have plunged to the lowest level since mid-2010 while the volatility has surged. Gold prices’ volatility has also risen as the prices have reacted negatively to the plunge in oil prices because lower oil prices reduce inflationary expectations and the demand for an inflation hedge. Gold prices are also hurt by the strong dollar. The market highly doubts that the ECB will move to a sovereign QE this Thursday. However, a QE from the ECB could raise inflation expectations, which should support gold prices.

Investors’ Positioning
The managed money net combined gold positions have risen almost ten percent during the week of 25 November after rising 56% the week before, led by a ten percent drop in the short positions. According to Barclays, the retail demand for gold remains strong with the U.S. Mint reporting that the last three months’ sales were matching those in the five months prior. On a positive note, given the lower oil prices and lower oil imports and therefore a lower current account deficit, the Indian government has scrapped the gold import curbs to remove trade distortions.

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03 Dec 2014 | Categories: Gold

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