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New Gold Markets in Asia

The U.S. Comex gold futures have jumped 3.34% last week and have risen 0.36% this week to $1,321.30 on Tuesday. The gold prices reached $1,326.60 intraday on Tuesday, approaching the recent high on 14 April although the prices are trading lower at around $1,313 during Asia’s Wednesday morning. The S&P 500 Index declined 0.65% this week, and the Euro Stoxx 50 Index fell 0.49% after rising last week. The oil futures have dropped 1.15% in the past two days after rising about 4.5% in the past two weeks. The Dollar Index is pretty much unchanged from last Friday. The U.S. ten-year government bond yield declined about 3bp this week to 2.578% on Tuesday.

Geopolitical Risks and the U.S. Economy
Almost all the recent economic data point towards a stronger rebound in the U.S. economy. The May existing home sales jumped 4.9% in May compared with 1.3% in April. The June consumer confidence index surged to 85.2 versus an expected 83.5. New home sales in May surged 18.6% versus 1.4% expected. However, the Case-Shiller housing price rose 10.82% year-on-year, the slowest yearly increase since March last year. Despite the better economic data from the U.S., geopolitical tensions in Iraq have kept gold prices higher this week. The U.S. Defense Department believes that the Sunni militants in Iraq are gaining ground and now pose a real threat to the Shiite-led Iraqi government.

Investor Positioning and New Gold Markets
The managed gold net combined positions have surged almost 30% during the week of 17 June to 66,572 contracts, led by a close to 20% decline in the shorts contracts. However, as Barclays pointed out, the gold-backed ETP holdings have dropped in both April and May and have continued to decline in June. Year-to-date, the holdings have declined 56.7 tonnes. While the redemption is much lower this year than last year, a big rebound is not likely according to Barclays, keeping the lid on gold prices. On the other hand, new gold contracts will begin to trade in both Singapore and China as gold consumption continues to shift to Asia. With Asia buying over 60% of the world’s gold jewellery, bars, and coins in 2013, a transparent reference price and a more active physical market in the East make sense.

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25 Jun 2014 | Categories: Gold

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