SHARPS PIXLEY Continued Cautious Tone Towards the World Economy and the Core Currencies Support Gold Prices
The U.S. Comex gold futures rebounded 0.25 percent to $1,660.80 on
Tuesday after falling 1.80 percent last week. The S&P 500 index has
risen 0.32 percent this week and 5.73 percent this year. The Euro
Stoxx 50 index rose 0.19 percent this week after rising 1.28 percent
last week. The crude oil futures have increased every week in the past
seven weeks, rising 15.5 percent from the recent low of $84.44 in
November last year. The Dollar Index has declined 0.23 percent this
week while the Euro/Dollar has surged to a 14-month high at 1.3492 on
Tuesday. The U.S. 10-year government bond yield briefly breached 2
percent on Monday.
Equities and High Yield Shine Despite Cautious Tone towards the Economy
The executives at the World Economic Forum at Davos last week were
cautiously optimistic about the world economy despite the fact that the
S&P 500 index is just 3.66 percent below its 2007 peak of 1,565.15
while the Dow Jones Industrial Average has surged to a five-year high.
The December U.S. durable goods order rose 4.6 percent compared to the
expectation of 2 percent. Corporate earnings in the U.S. have continued
to beat expectations. The 10-year Spanish government bond yield has
dropped 250bp since the peak reached in July 2012. Global junk bond
yields have continued to decline. On the other hand, the consumer
confidence in the U.S. declined more than expected in January to 58.6
from 66.7 in December, reflecting the impact of the higher payroll
taxes. The economies of Japan, Europe and the U.K are still shrinking.
Policy makers’ caution towards the economy suggests that the stimulus
measures are unlikely to be taken away anytime soon, which will support
gold prices.
Central Bank Keeps Buying Gold While Investors Sell ETFs
Bloomberg reported that the gold-backed ETP holdings fell 22 metric tons
from the 20 December peak to 2,610.272 metric tons on 27 January. As
the economy recovers, investors’ appetite for gold may have decreased.
On the other hand, according to GFMS, the world central banks bought 536
metric tons of gold in 2012, the largest increase since 1964. The IMF
reported that Russia’s gold reserves rose 2.1 percent in December and
8.7 percent in 2012. Kazakhstan’s gold reserves jumped 1.7 percent in
December and a whopping 41% in 2012. Turkey’s gold holdings rose 84% as
domestic banks deposited gold at the central banks. Given that the
sovereign debt crises are still haunting the U.S. and Europe, central
banks in emerging countries will continue to add gold on top of the
traditional reserve currencies.
Kelly Smith
Sharps Pixley, London
www.sharpspixley.com
30 Jan 2013 | Categories: Gold
