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In Gold We Trust as Equities Rout Continues

After surging 3.71% last week, the Comex gold futures surged again this week by 3.49% in the past two days to reach $1,232 on Tuesday, rebounding about eight percent from the recent trough on November 6. The S&P 500 Index and the Euro Stoxx 50 Index fell 0.73% and 3.5% respectively in the past two days while the crude oil futures have dropped over three percent to $63.82 on Tuesday. The U.S. ten-year Treasury bond yield fell 9bp this week to 2.214% on Tuesday while the ten-year German Bund yield fell almost 10bp to a low of 0.685%.

The U.S., Europe, and China experiencing disinflation
After a surge of the November non-farm payrolls to 321,000 compared to an expected 230,000, the number of positions waiting to be filled in November in the U.S. rose to 4.83 million compared to 4.74 million in October. However, the Fed’s most favourite gauge of inflation was at 1.4% recently, still below the two percent inflation goal. In Europe, inflation is expected to fall below zero percent as oil prices have collapsed over 40%, prompting the ECB to step up to implement its sovereign QE early next year. In China, the risk of deflation also sets in with the latest CPI data at 1.4% from 1.6% in October while the latest PPI data came in at -2.7%, declining for 33 consecutive months. Lower inflation rate, a falling Euro, and a rising dollar may hamper future gold prices.

Central Bank Liquidity to Expand
With economies slowing outside of the U.S., the global equity markets dropping, oil prices falling further, and a looming Greek election, the safe haven bid for gold has risen. Some analysts also expect that the global liquidity from the major central banks will expand by 13% in 2015 despite the end of the QE3 in the U.S. The holdings of the largest gold ETF, the SPDR Gold Trust, have jumped the most since September. Also India has eased its gold import restrictions and may scrap the requirement that the major trading houses need to export all of its imported gold.

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10 Dec 2014 | Categories: Gold

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