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Key Factors for Gold: Central Bank Actions and Currencies

The Comex gold futures dropped 0.42% this week to $1,090.30 on Tuesday after falling 6.56% in July. This week, the S&P 500 Index dropped 0.50% while the Euro Stoxx 50 Index rose 0.55%. After rising 1.94% in July, the Dollar Index has risen 0.61% this month. The crude oil futures fell a further 2.93% in August while the U.S. ten-year Treasury bond yield rose 4bp and the German ten-year Bund yield was almost flat.

Focus on the Central Bank and Currency Actions
The Fed chairman has recently raised the possibility of a rate hike in September while the Atlanta Fed President has also indicated that the Fed is close to a September liftoff. The other central banks in the developed world such as Australia, New Zealand, and Japan, are likely to take a break from loosening their monetary policies and depreciating their currencies further as the Dollar is rising ahead of the Fed liftoff. The New Zealand Dollar, one of the worst performing advanced economy currencies this year, has already fallen 16%. On the other hand, the China State Council has recently recommended a wider floating range for the Renminbi. As China slows down and the valuation of the Renminbi is already stretched, the currency can trade on the weaker side of the band. The Fed’s action in September and the direction of the Dollar continue to be the major driving factors for the gold investors, who will focus on this week’s U.S. non-farm payroll data for further clues on the timing of the first rate hike.

Investors Positioning
The speculators net gold combined positions were at -11,334 for the week of 28 July, rising only 11 contracts during the week. Bearish sentiment remains despite the drop in prices. The holdings in the SPDR Gold Trust have fallen 38 metric tons this year and have reached 670.62 metric tons on 4 August, the lowest level since September 2008. However, retail interests have surged as the gold prices drop with the U.S. Mint sales rising 469% in July. According to Barclays, 35% of 2015 sales of the gold coins happened in July.

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05 Aug 2015 | Categories: Gold

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