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Range-bound Gold Prices while Economic Sanctions against Russia Intensify

The U.S. Comex gold futures have rallied 2.10% in the past two days to $1,311.60 on Thursday while the S&P 500 Index and the Euro Stoxx 50 Index have fallen 0.50% and 1.91%. The Dollar Index has climbed 0.27% this week to 81.524 on Thursday. While the gold futures have jumped 1.35% for the week, the crude oil futures have declined 0.55%. The U.S. ten-year government bond yield dropped 8bp this week to 2.411% on Thursday, reaching the lowest level since the end of June last year.

Central Banks Stay Put For Now
The ECB left the refinancing rate at 0.15% and the deposit rate at -0.1% respectively. Strengthening manufacturing and services PMI in July balance out the lower than desired latest Eurozone inflation rate at 0.4% and Italy’s GDP of minus 0.20% year-on-year in Q2. The ECB is going to hire a consultant to design the asset purchase program, and it is watching more closely the impact from the economic sanctions and the Ukraine-Russia fallout. The Bank of England also kept its interest rate at 0.50% and the QE at 375 billion pounds, citing stronger economic and job growth albeit stagnant wage growth. The Bank of England is expected to be the first major central bank to raise rates.

Low Open Interests in Gold
While the Ukrainian tensions and the fightings in the Middle East have led to a stronger bid for safe-haven assets such as the U.S. Treasuries and gold, the CME Group reported that the open interests in gold futures have fallen to the lowest level since February 2009 to 358,996 contracts. The gold premium in the Shanghai Gold Exchange has also remained around zero. The pickup in growth in the U.S. and China recently has led to more equities than gold buying.

What to Watch
We will watch China’s July inflation data on 9 August, China’s July M2 and aggregate financing growth on 10 August, Japan’s Q2 real GDP on 12 August, China’s July fixed investment and industrial production and the July U.S. retail sales on 13 August, the Eurozone preliminary Q2 GDP on 14 August as well as the July U.S. industrial production on 15 August.

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08 Aug 2014 | Categories: Gold

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