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Macro Backdrop and Flows Not so Hot for Gold

After falling to a recent trough of $1,208.20 intraday in Asia on Monday, the U.S. Comex gold futures climbed to $1,221 on Tuesday as air strikes began in Syria. The gold futures are up 0.45% for the week and 1.56% for the year. The Dollar Index in contrast has climbed to a high since mid-2010 of 84.752 on Monday, rising 5.78% for the year. After rising 1.25% last week, the S&P 500 Index has dropped 1.37% in the past two days while the Euro Stoxx 50 Index has plunged 2.06% this week. The CRB Commodities Index has dropped 4.56% in the past three weeks and has fallen a further 0.57% this week. The U.S. ten-year government bond yield has fallen 9bp to 2.527% from 2.620% last Wednesday while the ten-year German Bund yield has fallen from 1.081% on 12 September to 1.011% on Tuesday.

Mixed Data Across the Globe
The U.S. September flash manufacturing index jumped to a more-than four-year high to 57.9, driven by the surge in the employment index. However, the August existing home sales in the U.S. fell 1.8% from the previous month to an annualized rate of 5.05 million as the lower-end housing demand dropped 15.9%. While the China September flash PMI Index climbed to 50.5 compared to the expected 50, the recently released China Beige Book shows that investments spending in Q3 will slow to the lowest level since 2012 while the number of firms applying for and getting loans remains low. The Chinese Premier currently does not expect more monetary stimulus to boost growth. The September Eurozone composite PMI fell to this year’s low at 52.3, led by the slowdown in France and Germany. The ECB will be more active in bringing back growth, which could weaken the Euro/Dollar and lead to lower gold pries.

Investor Flows
The gold-backed ETP holdings dropped to the lowest level in five years when investors sold almost 18 metric tons of gold last week while the equities and the Dollar have both surged this year. Year-to-date to 22 September, the total gold-backed ETP holdings fell 68 tonnes to 1,694 tonnes. The CFTC reported that the net long combined managed gold positions fell almost 22% to 55,716 contracts, driven by a 18% increase in the short positions. However, the sales of gold coins, jewellery, and bars have picked up in the U.S., China, and India. The World Gold Council also expects that with the gold trading hubs expanding in Asia, China’s gold demand could rise 20% in three years.

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24 Sep 2014 | Categories: Gold

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