Macro Bullishness Versus Investors’ Bearishness Towards Gold
After falling for four consecutive weeks, the U.S. Comex gold futures
rebounded 0.17 percent this week, ending at $1,574.90 on Tuesday. The
gold futures climbed a further 0.20 percent during early Wednesday Asian
hours. The CRY Commodities index rose 0.42 percent this week after a
weak performance in the past month. The Dollar Index is a mirror image
of gold, rising for the past four weeks and dropping 0.27 percent this
week. The S&P 500 index and the Euro Stoxx 50 index rebounded
strongly by 1.42 percent and 2.53 percent respectively this week.
Central Banks’ Actions Bullish For Gold
The Fed’s Vice Chairman Yellen recently said that the Fed should
continue with bond purchases and did not see any strong evidences of
excessive risk-building. The Fed’s Chairman Bernanke also believed that
raising interest rates too soon would affect longer-term economic
recovery and lower the real returns to investors. Iwata, the Bank of
Japan nominee, intends to push inflation rate as quickly as possible to
two percent, buy bonds with maturity longer than three years, and
possibly start bond purchases this year. The recent Euro/Dollar
weaknesses due to the renewed concerns of the European debt problems
will likely lead to more stimulus measures from the ECB. The Chinese
government pledged to maintain a GDP growth rate of 7.5 percent in 2013,
which should support gold’s demand. While the central bank’s policies
are supportive for gold, the latest QE program and the rising risk
appetite have led to a rise of the S&P 500 index of 8.38 percent
this year compared to a fall in the gold futures of 6.02 percent.
Short-Term Investment Demand Bearish for Gold
While hedge funds have failed to buy gold recently and have maintained
elevated short positions similar to the level in 2005, gold-back ETP
holdings also fell to a five-month low of 2,500 tons on 4 March
according to Bloomberg. However, the physical demand for gold in China
and India has responded to the lower level of gold prices. In the
annual budget in India, the government did not raise import duties
further, helping gold’s future demand from the world’s largest gold
consumer.
Kelly Smith
Sharps Pixley, London
www.sharpspixley.com
06 Mar 2013 | Categories: Gold
