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Gold’s Tame Response to the Volatility from Greece and Bonds

The U.S. Comex gold futures retreated 1.61% in the past two days to $1,175.20 on Thursday compared to -0.63% for the S&P 500 Index and -0.15% for the Euro Stoxx 50 Index. The Dollar Index also declined 0.39% to 95.461 in the same period while the crude oil futures have plunged 5.32%. Although global bond yields rallied on Thursday, the U.S. ten-year Treasury bond yield is still up 18bp this week to 2.307% and the German ten-year Bund yield is up 35bp to 0.835% on Thursday.

IMF’s Assertiveness on Greece and the U.S.
More than just managing the imminent Greece debt repayment problems, the G7 Group is dealing with the Russian sanctions and the nuclear talks with Iran. Greece would need to repay its debt by June 30, which is also the deadline for the Iranian talks as Bloomberg pointed out. Germany’s Merkel mentioned that Greece and the lenders are far from agreeing on a deal. With no agreement, Greece will now bundle all their payments to the IMF for 30 June. While the chance of a “Grexit” has increased, the ECB has also said that the region is more capable of withstanding the contagion from the “Grexit” given the QE has fed through somewhat to the real economy. Still, the Euro Dollar responded by falling 0.33% on Thursday and another 0.20% during Asia Friday morning. On Thursday, the IMF surprised the market by explicitly suggesting that the U.S. should wait until 2016 to hike interest rates.

Investor Positioning
The managed money net combined gold positions have dropped 16% during the week ending 26 May while the SPDR gold trust ETF has slipped out of the top ten ETFs in terms of assets. India also reported that this year’s auspicious wedding days have dropped 40%, which will impact gold sales. The gold demand in China has also suffered because of the red hot stock markets as promoted by the government. Thinning gold volumes in Comex did not help sentiment.

What to Watch
The market is keenly watching the May U.S. non-farm payrolls and the unemployment rate on Friday. We will also monitor Japan’s Q1 real GDP on 7 June, China’s May exports and imports data and Germany’s April industrial production on 8 June, China’s May inflation data on 9 June, China’s May aggregate financing data and M2 growth on 10 June, May U.S. retail sales and May China fixed asset investments, retail sales, and industrial production on 11 June as well as the June U.S. “flash” Michigan consumer sentiment index on 12 June.

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05 Jun 2015 | Categories: Gold

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