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Gold Surge Sparks Renewed Investor Interests

After the Fed has concluded the FOMC, the U.S. Comex gold futures have surged 3.85% in the past two days to $1,321 on Thursday while the silver futures have jumped 5.33% and the Dollar Index has fallen 0.39%. Week-to-date, the S&P 500 Index has climbed 1.22% to an all-time high of 1959.48 on Thursday while the Euro Stoxx 50 Index has increased almost one percent and the gold futures have surged 3.64%. With the surge in gold prices on Thursday, the gold futures now returned 9.83% year-to-date, beating both the S&P 500 Index and oil. The U.S. ten-year government bond yield climbed about 2bp this week to 2.621% on Thursday.

Fed Stays the Course
As expected, the Fed cut its QE purchase to $10 billion to $35 billion a month. However, Fed governor Yellen pledged that the monetary policy would be accommodative and the interest rates would stay low for as long as need be. Inflation is not a concern for the Fed currently, and there is still a decent amount of slack in the labour market. The Fed will likely maintain a large balance sheet even after interest rates rise. The markets in the Treasuries and precious metals have prepared for a more aggressive Fed given the upturn of the latest inflation figure and the expectation of the Bank of England to hike rates soon. The low-rate pledge by the Fed triggered a wave of short-covering and technical buying in gold.

Gold as an Ideal Liquid Alternative
The World Gold Council (WGC) has just published a report identifying that gold as the most preferred choice of “liquid alternatives”, which are alternative investment strategies offered with daily liquidity. In addition, gold has several advantages over the other liquid alternatives including better liquidity, lower cost, and a longer track record. The WFC also finds that gold will further enhance performance of a portfolio with alternative assets, which include hedge funds, private equity, and real estate investment.

What to Watch
We will monitor the Eurozone June flash manufacturing PMI and May U.S. existing home sales on 23 June, the U.S. housing price index in April and the June Germany IFO business climate on 24 June, the U.S. final GDP in Q1 on 25 June as well as the May U.S. core PCE price index and the May CPI in Japan on 26 June.

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20 Jun 2014 | Categories: Gold

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