More Inflation and Rising Physical Demand Expectations Cheer Gold
After dropping 23 percent in Q2, the U.S. Comex gold futures have
rebounded 1.81 percent so far in July. The Dollar Index is marching
towards the 85 handle, after falling 0.29 percent last month. The
S&P 500 index suffered its first monthly loss since October 2012 in
June, but has rebounded 2.87 percent in July. The Euro Stoxx 50 index
dropped about 6 percent in June, but has risen 2.36 percent this month.
The CRB Commodities index suffered a loss of 7 percent in Q2 although
it has risen 2.89 percent in July, led by the crude oil’s rebound of
7.22 percent.
The ECB, the Chinese inflation, and the U.S. Job Data
The news from Europe and China has supported gold prices this week and
last week. Although the ECB left its policy rate unchanged at 0.5
percent, it states for the first time that interest rates will be at
this level or lower for an extended period of time. The Portugal
coalition rift sent the 10-year government bond yield to above 8 percent
on 3 July. The government will try to negotiate a higher deficit than 4
percent with the Troika. The Chinese June exports and imports both
fell over a year ago, inciting fears of further economic slowdown. The
fall in exports is likely correcting the earlier “inflated” exports data
in the past several quarters. The June Chinese inflation accelerated
2.7 percent over a year ago, compared with the Bloomberg forecast of 2.5
percent. A rebound in Chinese inflation is supportive for gold because
gold is viewed as a store of value, and a hedge against risky assets
and inflation in many parts of Asia. The U.S. June non-farm payrolls
rose 195,000, much stronger than the forecast of 165,000. The previous
two months’ data were revised upwards by a net 70,000, showing a rising
momentum in job recovery. The June unemployment rate remains at 7.6
percent. On Tuesday, the IMF cut the 2013 global GDP growth forecast by
0.2 percent to 3.1 percent. It also lowered the 2013 U.S. GDP growth
from 1.9 percent to 1.7 percent this year. It urges the developed
world, which has enjoyed weak growth and low inflation, to continue with
the stimulus programmes.
What is Happening to Physical Demand?
So far, physical demand has not responded as enthusiastically to the
gold price drop as in April. According to Barclays, the rolling monthly
volume traded in the Shanghai Gold Exchange is about 20% below the
April’s peak. However, China’s net gold imports from Hong Kong rose 40
percent in May. In India, gold imports plunged to 31.5 tonnes in June
from 162 tonnes in May. With an expected good monsoon as well as the
upcoming wedding season and Diwali, imports will likely rise in the
second half of 2013. The U.S. Mint gold coin sales have risen 20,000 oz
in the first week of July, compared to 34,500 oz in July 2012. So far
in 2013, the U.S. gold coin sales have reached 810, 500 oz, only 21,000
oz below the entire 2012 level.
The market will intensely scrutinize the June FOMC minutes, which will be out this Wednesday.
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10 Jul 2013 | Categories: Gold
