Rising Dollar and the New Silk Road Gold Fund
After falling 1.74% last week, the U.S. Comex gold futures dropped 1.42% on Tuesday after the U.S. Memorial Day weekend and ended at $1,186.90. This week, the S&P 500 Index has declined 1.03% while the Euro Stoxx 50 Index has fallen 1.59% and the crude oil futures have plunged 2.83%. The Dollar Index climbed 1.34% this week to 97.299 on Tuesday, rebounding 4.5% from the low reached on 15 May. The Euro/Dollar has also fallen from the recent high of 1.1451 to 1.0873 on Tuesday. The U.S. ten-year government bond yield fell 6bp on Tuesday while the German ten-year Bund yield dropped 5.6bp this week.
Dollar Marching Up Again
Several factors have resurrected the down trend of the Dollar recently. First, incoming U.S. data have raised the probability of a rate hike this year. The U.S. core inflation climbed 0.3% in April compared to 0.2% expected. The April capital goods non-defense orders ex-aircraft and parts jumped one percent compared to 0.3% expected while the April new home sales rose 6.8% compared to an expected 5.6%, raising the annualized rate to 517,000 compared to the expected 508,000. All eyes would be on the G7 Central Bank and Finance Ministers meeting in Europe regarding Greek negotiations on Wednesday, the ECB’s review of the Greek banks’ liquidity and solvency, and the ECB’s decision whether or not to restrict the emergency funds to the Greek banks. Oil prices suffered on Tuesday as the market believes that the oil supply glut, currently at 100 million barrels above the five-year average, will continue. In Japan, the BOJ pushed back the inflation target date to 1H of 2016 fiscal year. The Dollar is reclaiming its mighty position against the major currencies, which leads to falling commodity prices.
Gold Positioning and the Gold Fund
The managed money net combined gold positions jumped a whopping 140% to 86,672 contracts during the week ending May 19 with the short contracts declining 29% and the long contracts rising 26%. Still, the net positions only rose back to the level in early March. In India, the government has announced further details on its gold monetization scheme. The bigger news is China’s establishment of a new gold fund to raise about $16 billion to develop gold mining projects along the New Silk Road and to facilitate other central banks to purchase gold for their reserves.
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