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Market Concerns about Gold

The U.S. Comex gold futures fell three dollars to $1,241.40 this week after dropping 3.36 percent last week. The gold futures reached $1,225.7 on 25 November, the lowest level in almost four months. The Dollar Index also fell 0.12 percent this week after declining 0.17 percent last week. The S&P 500 Index fell 0.10 percent while the Euro Stoxx 50 Index rose 0.22 percent in the past two days. The U.S. 10-year government bond yield fell 3bp this week while the Euro/Dollar ended at 1.3572 on Tuesday, close to the level last Friday.

Market Concerns
UBS has just recently lowered its one-month gold price forecast to $1,180. Gold prices have reacted negatively to stronger U.S. data, which would suggest that the Fed will taper earlier rather than later. The U.S. October housing permits climbed 6.2 percent to a five-year-high annualized rate of 1.03 million while the Case-Shiller 20-city housing price index rose 13.3 percent year-on-year in September, the highest increase since February 2006. These data overshadowed a weaker-than-expected October consumer confidence index at 70.4 compared to a median forecast of 72.6. Market has taken notice that the gold prices have declined even though the Dollar Index has fallen since early November. Physical demand in Asia has remained subdued with the import curb in India despite the higher consumption season, local shortages, and a premium as high as $120/oz. In Singapore and Tokyo, the gold price premium has slightly fallen last week.

Investors Positioning
The gold-backed ETP holdings have fallen about 1.7 percent this month and 30 percent year-to-date to 1,848.80 metric tons as of 25 November. The recent physical demand has not lent that much support. Speculators have also cut their combined net long gold positions by about 20 percent during the week ending 19 November, prompted by a jump in the number of short contracts to a three-month high. One bright spot is the industry-wide cost-cutting move: the average gold cash costs have fallen 14 percent in Q3 2013 based on Barclays’ calculations.

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27 Nov 2013 | Categories: Gold

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