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Pondering Gold’s Last 11.5 Years of Performance While Anticipating the EU Summit

After falling 3.76% last week, the U.S. Comex gold futures climbed $8, or 0.51% in the first 2 days of this week. The S&P index dropped 1.1% after falling 0.58% last week, while the Stoxx index plunged about 2.7% after a gain of 0.26% last week. The Euro/Dollar continued its decline, and fell 0.63% this week, after falling 0.54% last week.

The real action has been in the commodities markets, where crude oil futures fell 25% from the peak in 2 May at $106.16 to currently $79.36, while the corn futures surged 23% from the recent trough in 15 June at $506 to currently $624. Oil fell in relation to global economic weakness, while corn price was squeezed because the dry weather in the U.S. Midwest region has restricted supply.

On investors’ flows, the CFTC reported that managers and traders have raised their net-long positions in the U.S. futures and options by 7% in the week to 19 June, just when commodities have fallen into a bear market. The gold net non-commercial combined positions have risen for the third week to 138,011 contracts, rebounding from the recent trough in 29 May. The physically-backed ETP holdings rose 38.7 metric tons month-to-date to within 0.1% of the March’s peak level, which continues to be a positive factor for gold price.

Traders have been waiting on the sidelines for the results of this week’s EU Summit, not knowing whether Europe will adopt more concrete steps towards fiscal and banking unions, or will face a full banking crisis and a Euro collapse. Disappointing debt auctions for Italian and Spanish bonds caused their yields and European tensions to rise, raising demand for the U.S. dollar and hurting gold price. Dollar assets have also been supported by better U.S. home prices, which fell 1.9% on a yearly basis in April, the slowest rate of decline in a year.

Like we said before, gold price has been hampered recently by deflationary, or more accurately, disinflationary forces, and the U.S. dollar strength. However, despite the economic headwinds, the European credit crisis, and the stock markets’ volatility, gold futures are still up 0.5% for this year, and have risen in 11 consecutive years, beating most other major asset classes. Gold has not only preserved the investors’ portfolio value, but has also enhanced portfolio performance in both good and bad economic times.

Sharps Pixley, London

27 Jun 2012 | Categories: Gold

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