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Near-Term Market Volatility Supports Gold

The U.S. Comex gold futures have declined 1.32% this week compared to -0.21% for the S&P 500 Index, -0.62% for the Euro Stoxx 50 Index, and -3.42% for the crude oil futures. The Dollar Index has risen almost one percent by contrast. The gold futures bounced 0.21% on Thursday and a further 0.13% during Asia Friday morning. Both the U.S. ten-year government bond yield and the German ten-year Bund yield have declined 7bp week-to-Thursday. As of the writing of this article, there was no imminent deal for Greece.

Near-term Market Worry
Alarm bells are sounding louder on the consequence of a Greek debt default by both the ECB and the U.S. government. The most immediate effect would be higher bond yields in debt-ridden countries in the Euro Area and higher financial market volatility, which would derail further the growth recovery effort. The first Greek payment will be due on 5 June to the IMF. In Japan, the April core inflation excluding the sales-tax levy is still at zero percent year-on-year, making it more likely for Japan to ease monetary policy further. In the U.S., jobless claims increased 7,000 in the most recent week but have remained below 300,000 for twelve consecutive weeks.

Short-term Support for Gold
With the rising volatility in global stocks and currencies and the protracted debt negotiations between Greece and its creditors, the gold prices will get a near-term support from politics and the market volatility. In April, the Swiss gold exports to India fell 28% over March and the exports to China dropped 67%. China’s April gold imports from Hong Kong also fell 21% as compared to March. Nevertheless, Q3 is a seasonally strong quarter for gold demand although a possible but not guaranteed Fed rate hike in September could counter the seasonal effect.

What to Watch
We will monitor China’s May PMI index and the April U.S. core PCE price index on 1 June, the May German unemployment change and the ECB interest rate announcement and press conference on 3 June, the Bank of England monetary policy decisions on 4 June as well as the May U.S. non-farm payrolls, the U.S. unemployment rate, and the first debt payment by Greece to the IMF on 5 June.

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29 May 2015 | Categories: Gold

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