The Balancing Act in the Gold Market
The U.S. Comex gold futures rose 0.32% to $1.229.40 after falling for three consecutive days. Year-to-date, the gold futures rebounded 2.25% while the S&P 500 Index and the Euro Stoxx 50 Index retreated 0.50% and 0.60% respectively. Gold prices have strengthened in the face of a stronger dollar; the DXY index rose 1.21% this year. The U.S. ten-year government bond yield fell 2 bp to 2.9652% on Thursday after the Fed minutes release on Wednesday.
The Fed, ECB and the BOE
The
recent Fed minutes revealed that the governors were generally in
agreement with the QE tapering with most governors seeing the QE
programme to end by year-end. The forward guidance has calmed the gold
market, which rose on Thursday. Janet Yellen, the next Fed chairman,
sees a three percent handle in the U.S. GDP growth this year and will
focus primarily on reducing the unemployment rate to a range of 5.2% to
5.8%. On Thursday, the U.S. latest weekly jobless claims dropped 15,000
to 330,000, compared to an expected 335,000. Both the ECB and the Bank
of England kept interest rates unchanged. Latvia has just joined the
Euro. The ECB expects 1.1% 2014 GDP growth for the region although the
unemployment rate is still stuck at 12.1%. The worry is on inflation,
which is at less than half of the ECB’s two percent target.
Two Types of Gold Markets
While
speculators have reduced their net long gold positions from a high of
254,000 contracts in August 2011 to around 34,000 contracts as of
year-end, the physical market has been booming. The Royal Mint has sold
out all their debut gold bullion coins in just two days. The
Australia’s Mint gold coins sales surged 41% while the U.S. Mint sales
rose 14% in 2013. The downside of gold prices has been capped by the
longer-term buying by the central banks and the individual investors.
The longer-term physical demand will continue to balance out the
shorter-term speculative paper markets.
What to Watch
The
market will focus on the December non-farm payrolls and the
unemployment rate in the U.S. on 10 January to gauge the pace of the Fed
tapering. We will also monitor China’s Q4 GDP, China’s December
industrial production, the E18 December industrial production, and the
U.S. December retail sales on 14 January, the ECB monthly bulletin and
the December U.S. CPI on 16 January as well as the U.S. December housing
starts on 17 January.
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10 Jan 2014 | Categories: Gold
