More Gold Capitulations at Quarter-End
The U.S. Comex gold futures touched a low of $1,196.10 on Thursday, and
are heading towards a loss of over 24 percent for Q2. Since the recent
FOMC meeting on 18-19 June, the gold futures have lost 12 percent, the
S&P 500 index has dropped 2.8 percent while the Euro Stoxx 50 index
has declined 3 percent. The stocks and commodities markets have not
only reacted negatively to a more definitive plan from the Fed to taper
its bond purchases but also to the rising bond yields. The U.S. 10-year
government bond yield has risen 63bp month-to-date to 2.477 percent.
The S&P 500 index rebounded 1.58 percent while the Euro Stoxx 50
index surged 3 percent in the past two days. The Dollar Index finished
at 82.902 on Thursday, down from 83.375 at the end of May.
Month-end Liquidation
A few factors have helped to push down the gold prices further this
week. The latest catalyst came from the stronger U.S. data. The U.S.
pending home sales surged 6.7 percent in May compared to a median
forecast of 1 percent while the jobless claims fell 9,000 to 346,000 in
the recent week. Institutional investors and traders are liquidating
their gold positions for month-end and quarter-end window-dressing. The
gold prices have also followed the break-even inflation rate of the
10-year TIPs lower. The holdings in the largest gold ETF, GLD, is now
below 1,000 metric tons, back to the level in early 2009. Continuous
selling by the ETF investors and the large speculators has led to an
oversold position in gold as measured by the RSI, which reached 13.7 on
Thursday.
Longer-run Offsetting Factors
While the momentum for gold is clearly down and the investors are
disillusioned, several factors can help to prop up the gold market in
the second half of 2013 according to GFMS. The sovereign debt crisis in
Europe and the U.S. may resurface later this year. The U.S. economy
may recover more slowly and cause the Fed to postpone the bond purchases
tapering. The equity markets may hit a wall. The supply of gold will
be cut as gold prices plunge below the cash costs. Also, the
fabrication demand may rise as a result of the fall in gold prices.
What to Watch
We will watch the final June U.S. and China manufacturing ISM data and
the E-17 unemployment rate on 1 July, the ECB’s interest rates decision
and press announcement on 4 July as well as the U.S. June non-farm
payrolls and unemployment rate on 5 July.
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28 Jun 2013 | Categories: Gold
