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Physical Demand Responding to Lower Gold Prices while ETP Outflow Continues

After rising above $1,200 on Tuesday, the U.S. Comex gold futures finished at $1,197.10, rising 0.97% this week and climbing 1.35% last week. The rally in the Dollar Index seems to have stalled as the index has traded between 87 and 88 since the beginning of November. The S&P 500 index and the Euro Stoxx Index have climbed 0.61% and 1.97% respectively this week while the crude oil futures have dropped 1.60% to $74.61. The U.S. ten-year government bond yield was flat this week at 2.315% while the ten-year German Bund yield rose 1bp to 0.795% on 18 November.

Recent Japan and ECB Measures
After the Bank of Japan has announced its increase in asset purchases at the end of October, Japan fell into a recession and contracted 1.6% quarter-over-quarter annualized in Q3 versus an expected 2.2%. Prime Minister Abe called a snap election to save his policies termed “Abenomics”, prepared a new stimulus package, and delayed the second sales tax increase for 18 months. The ECB President mentioned on Tuesday that his unconventional stimulus could include sovereign bonds purchase while one ECB Executive Board member said that the ECB could also buy gold, ETFs, and real estate to combat low inflation.

Central Bank Gold Purchases and Physical Demand Responses
Bloomberg reported that the SPDR Gold Trust holdings have dropped to close to the lowest level since 2008, and the global ETP holdings have fallen 8.2% in 2014. Managed money net combined gold positions have also fallen 14.2% during the week of 11 November. However, the central banks have collectively bought 335 tonnes of gold this year while Russia alone has purchased 115 tonnes year-to-September. The retail demand for gold coins according to the U.S. Mint has been strong in October and November as a response to the lower prices. In China, the rolling monthly average traded volume of gold has reached the highest level since May this year according to Barclays.

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19 Nov 2014 | Categories: Gold

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