Rising Physical Demand for Gold to Mitigate the Fear of the Stronger U.S. Data
The U.S. Comex gold futures have plunged 3.09% to $1,294.70 on Thursday
and traded as low as $1,289.60. Month-to-date, the gold futures have
declined 2.09%, the first monthly decline this year. Year-to-date, gold
has trimmed its gain to 7.69%. In the past two days, the S&P 500
Index has declined 0.87% while the Euro Stoxx 50 Index has climbed 1.20%
while the CRB Commodities Index has jumped 1.04%. The Dollar Index has
traded above 80 this week. The U.S. ten-year government bond yield has
declined 6bp this week to 2.681% on Thursday.
Looking at a Stronger Q2 in the U.S.
Gold prices have had a tough week since the Fed has voiced the time
frame for an interest rate hike last week and the stronger U.S. data
this week The most recent U.S. jobless claims fell to a three-month low
to 311,000 during the week ending 22 March while the final U.S. Q4 GDP
came out stronger than previously estimated. Analysts believe that the
stronger U.S. data point towards a fundamental improvement in the
economy. Fed Governor Evans remarked on Thursday that interest rates
could rise in the second half of 2015 because of an expected rise in
inflation. If higher interest rate is accompanied by a rising inflation
rate, real interest rate will not necessarily rise rapidly, lending
some support to gold prices.
Physical Demand Support Also Looking Stronger
As the Indian general elections loom near and the wedding seasons
arrive, the jewellers are expecting that the government will relax the
ten percent import duty on gold in order to help the local jewellery
industry to recover. As a result, India’s import demand should exceed
that in 2013. According to a study on China’s physical demand in “In
Gold We Trust”, China has withdrawn 488 metric tons of gold year-to-date
from the vaults of the Shanghai Gold Exchange (SGE), a 29% increase
versus the same period last year. Various studies have supported that
the gold withdrawal from the SGE is the best gauge of China’s physical
demand. With the Chinese looking to quicken the pace of the Renminbi
internationalization, the government will continue to increase its gold
reserves, albeit secretly, to back up its currency.
What to Watch
We will monitor the Fed Chairman Yellen’s speech on 30 March, the March
Germany unemployment change, the final PMI for China, E18, and the U.S.,
and the February E18 unemployment rate on 1 April, the March U.S.
private payrolls on 2 April, the ECB interest rate decision and its
press conference on 3 April as well as the U.S. March non-farm payrolls
and the unemployment rate on 4 April.
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28 Mar 2014 | Categories: Gold
