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South African Strike Positive for Gold despite Weak Physical Demand

The U.S. Comex gold futures have risen 0.61% this week to end at $1,260.10 on Tuesday on the back of the breakdown of the talk to end the South African miners strike and the precious metals group rally. The S&P 500 Index has been flat and the Euro Stoxx 50 Index has risen 0.59% during the same period. The Euro/Dollar has dropped 0.70% this week to 1.3547 on Tuesday while the Dollar Index has risen 0.51%. The U.S. ten-year government bond yield surged 6bp to 2.644% in the past two days.

Global Economic Pulse
The U.S. added 217,000 jobs in May, the fourth consecutive month when jobs have risen above 200,000 a month. About 1.8% of workers are willing to quit their jobs compared to a high of 2.3% in November 2006. In China, the market has been cautiously optimistic about the reserve requirement cuts directed to the rural and smaller banks by the Central Bank and the better than expected exports growth of 7% year-on-year in May. On the other hand, the World Bank has just reduced its growth forecast for the U.S. and the BRICs countries and knocked down its world growth forecast to 2.8% for 2014 from 3.2% as predicted in January.

Gold Demand
According to Bloomberg, the gold-backed ETP holdings have dropped to a recent low of 1,715.7 metric tons on 6 June while the holdings have fallen 45 metric tons this year. The managed gold combined net positions have fallen 25.34% to 51,064 contracts as of the week ending 3 June compared to the peak of 138,000 contracts in March this year. The drop was led by a surge in the shorts contracts by almost 31% for the week. While investors and speculators are selling their holdings, the Greater China area and India are demanding more gold than the world is mining. Nevertheless, the gold price premium in China has dropped significantly recently to below two dollars per oz, which may indicate that gold prices need to go lower before instigating more physical demand.


This story is provided by Sharps Pixley, for more information and content please visit: www.SharpsPixley.com

11 Jun 2014 | Categories: Gold

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