Positive Contagion from China and Europe Boosting Gold
The U.S. Comex gold futures jumped 1.36 percent on Thursday to reach
$1,678/oz, gaining 1.76 percent this week. The Euro/Dollar also jumped
1.59 percent to reach 1.3272, a nine-month high. The CRY Commodities
index, the S&P 500 index and the Euro Stoxx 50 index rose 0.65
percent, 1.03 percent and 0.62 percent respectively in the past two
days. The Dollar Index fell below 80 on Thursday.
Stronger Chinese Data Set the Tone
Better than expected Chinese exports data cheered the stock, gold and
commodities markets. In December, Chinese exports jumped 14.1 percent,
compared to a forecast of 5 percent. Chinese imports also rose higher
than expected at 6 percent, confirming a trend of economic recovery.
Oil and commodities currencies also gained upon the news. Higher
Chinese economic growth is expected to lead to higher demand for gold as
an alternative investment and an inflation hedge. We believe gold
price rises due to the higher expected Chinese demand for gold, and less
because of the risk-on environment.
Positive Contagion in Europe
On 10 January, the ECB President Mario Draghi held interest rates
unchanged at 0.75 percent. However Draghi maintained that risks are
still to the downside while inflation is declining, leaving room for
further monetary easing. The ECB was encouraged by the financial
indicators’ improvement and the stabilization of the market conditions,
citing a positive contagion effect. The 10-year Spanish government bond
yield has declined by more than 275bp since last July while the
Euro/Dollar has reached a nine-month high. The various European
governments’ actions and the ECB policies have managed to hold the Euro
bloc together, cheering the Euro/Dollar while hurting the U.S. Dollar.
What to Watch Next Week
The important events to watch include the speeches of the San Francisco
Fed President and the Atlanta Fed President (both FOMC voters) on 14
January, the Euro-17 final December HICP and the December U.S.
industrial production growth on 16 January, the ECB monthly bulletin and
the U.S. December housing starts on 17 January, and the Chinese Q4 GDP
year-on-year growth on 18 January.
Kelly Smith
Sharps Pixley, London
www.sharpspixley.com