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Seasonal Pattern and Stocks Rebound Impact Gold

The U.S. Comex gold futures have declined 2.03% on Tuesday after the U.S. Memorial Day weekend while the S&P 500 Index has risen 0.60% and the Euro Stoxx 50 Index has climbed 1.32% for the week. Month-to-date, the U.S. gold futures have fallen 2.35% and the CRB Commodities Index has dropped 0.53%. In contrast, the S&P 500 Index has jumped 1.70% and the Euro Stoxx 50 Index has surged 3.01%. The U.S. ten-year government bond yield has traded in a narrow range between 2.49% and 2.55% since mid-May.

U.S. Growth Rebound and China’s Falling Demand
Stocks from the U.S. to Germany to Japan, and even Russia and Ukraine have all jumped in May. As Ukraine’s President Poroshenko was elected on 25 May and the pro-Russian separatists eased the pedal on fanning more unrest in Eastern Ukraine, the interest for safe havens such as gold has waned for the time being. In the U.S., the April durable goods orders, led by ex-defense capital spending, jumped 0.80% compared to a forecast of -0.7%. The U.S. May Consumer Confidence Index rose from 82.3 last month to 83 as short-term outlook has improved and the home prices have continued to climb. As China slows, the Central Bank has poured more funds into the interbank market with the seven-day repo falling 87bp in May to 3.20%. China’s investment demand for gold bars and coins has also slowed as evidenced by falling Swiss exports of gold to China and Chinese net imports of gold falling 15.2 metric tons to 65.4 metric tons in April.

How Investors are Positioned
According to the CFTC, the managed money net gold positions have declined 4.21% to a two-month low of 90,358 contracts during the week of 20 May. Gold-backed ETP holdings were as low as 1,715.84 tons on 22 May, a drop of 47 tons this year. As geopolitical tensions ease and stocks rally when growth rebounds in the U.S., the demand for hedges has also declined. Gold prices have shown seasonal weakness in May and June while the months of July to September have shown the greatest strength. Renewed political turmoil may be able to prop up gold a little.

28 May 2014 | Categories: Gold

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