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Rising Risk Appetites Hurt Gold for Now

In the first two days of the month, the U.S. Comex gold futures declined 1.42% to $1,260.30, underperforming the S&P 500 Index which rallied 2.76%, the Euro Stoxx 50 Index which climbed 1.87%, and the crude oil futures which surged 9.97%. Since the trough on 28 January, the crude oil futures have rallied 19.3% to $53.05. The Brent oil futures have rallied 24.3% since the low on 13 January to $57.91 on Tuesday. The Dollar Index fell $1.2 this week to $93.6. The U.S. ten-year Treasury bond yield rose 15bp this week to 1.792% on Tuesday while the ten-year German Bund yield widened 4bp to 0.343% on Tuesday.

Easing by the Central Banks Continues
Australia finally decided to cut rates by 25bp to 2.25%, the first cut in 17 months as commodity prices tumbled and growth continues to be below potential. Greece is looking to restructure its debt for the third time although private investors are not expected to be hit. Last Friday’s U.S. Q4 GDP release shows a 2.6% increase versus the three percent expected, with consumption rising 4.3% but net exports and corporate equipment spending both a drag. The January U.S. manufacturing PMI index was weaker than expected at 53.5. The Eurozone January manufacturing PMI index was in line at 51 although the PPI dropped one percent compared to -0.7% expected. China’s January flash HSBC manufacturing PMI index shows a contraction at 49.7, slightly weaker than expected. This points to more monetary and fiscal support from the government.

Investors’ Positioning
The gold futures retreated as the risk appetite for equities comes back a little in February. At the same time, the managed money has taken the net combined gold positions to the highest level since November 2012 during the week ending 27 January as the short positions have fallen 20.46% and the long positions have risen 9.42%. This suggests that there is less technical support for the gold prices. A recent GFMS industry report predicts an average gold price of $1,170 this year, making this year the lowest point for the average annual prices in this bear cycle, suggesting that the pent-up gold demand will resurface later this year.

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04 Feb 2015 | Categories: Gold

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