Market Volatility and Growth Uncertainty Brought Back Interest into Gold
The U.S. Comex gold futures outperformed all the major asset classes this week, jumping 1.60% to end at $1,241.20 on Thursday. Gold prices have surged while the S&P 500 Index has dropped 2.26%, the Euro Stoxx 50 Index has plunged 3.87%, and the crude oil futures have dived 3.64% week-to-Thursday. The Dollar Index has lost 1.11% to finish at 84.955 on Thursday. The benchmark U.S. ten-year Treasury bond yield plunged to a low of 1.862% from 2.281% last Friday. The Merrill Lynch Treasury Bond options implied volatility index (MOVE Index) surged from 74.64% on Tuesday to 101.28% on Wednesday while the VIX Index jumped from 21.24% at the end of last week to 26.25% on Wednesday and 25.20% on Thursday. The Greek ten-year bond yield has surged almost 220bp this week to 8.641%.
Bad Global Growth News and Mixed U.S. Data Spur Market Volatility
The global equity drop was induced by the European equities sell-off, which was prompted by the negative August industrial production data from Germany and the market’s disappointment with the lack of further monetary announcements by the ECB to fight deflation and a likely recession in Europe. Many are expecting China to set a lower growth target of about seven percent for next year to create more room for rebalancing and reform. The September U.S. retail sales of -0.3%, an inflation expectation of 1.5% in 2019, and foreign growth slowdown have fueled growth recovery concerns in the U.S. The September manufacturing output climbed 0.5% compared to -0.5% in August, which can signal that the U.S. recovery is holding up.
Higher Gold Demand
While the sentiment towards gold has been soured given little inflationary pressure, the global equity rout and the on-going geopolitical risks have led to a rising demand for gold as an uncertainty and a portfolio hedge. The U.S. SPDR gold trust holdings have risen 0.20% this week after declining for four consecutive weeks. Barclays have noted that the rolling monthly average gold volume traded on the Shanghai Gold Exchange has jumped to its highest level since May 2013 while the demand for gold for festivities in India has improved.
What to Monitor
We will keep an eye on the Fed Chair’s speech this Friday. Next week, we will monitor the September China industrial production data, the Q3 China real GDP growth, and the U.S. September existing home sales on 21 October, the October Bank of England MPC minutes, the U.S. September CPI on 22 October, the October flash manufacturing PMI from China and the Eurozone and the September U.S. leading indicators index on 23 October as well as the U.S. September new home sales on 24 October.
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17 Oct 2014 | Categories: Gold