The Chinese Step Back while the Safe Haven Bid for Gold Rises
The U.S. Comex gold futures rose 0.62% this week to end at $1,331.20 on
Thursday. After rising three percent last month, the gold futures will
likely be up seven percent in February. The Dollar Index is practically
unchanged this week while it has risen 0.31% this year. The S&P
500 Index retraced all its losses this year and reached an all-time high
of 1854.29 on Thursday. The S&P 500 Index climbed 1.02% this week
while the Euro Stoxx 50 Index was up 0.1%. The U.S. 10-year government
bond yield rallied almost 10bp to 2.6405% week-to-Thursday as a slower
U.S. growth and political turmoil in Ukraine add to the safe haven
demand of Treasuries.
The Yellen Boost
The gold futures rebounded from a 1.09% plunge on Wednesday after the
Fed Chairman Yellen mentioned on Thursday that they would continue to
taper in “measured steps” and need to decipher how much of the recent
weak data is due to bad weather and how much is due to a weaker outlook.
The softer tone and the apparent readiness of the Fed to slow the pace
of tapering have boosted both the gold prices and stocks. While the
January U.S. durable goods ex-transportation rose 1.1%, the weekly
initial jobless claims jumped 12,000 to 348,000 compared to an expected
335,000. In Europe, the ECB said that they are committed to counter
deflation because falling prices make structural adjustments for the
countries even harder.
Safe Haven Demand for Gold
After a group of gunmen have seized the local government buildings and
later the airport in Crimea in Southern Ukraine and the Russians are
getting ready for war games near the border of Ukraine, safe havens such
as Treasuries, gold, Yen as well as Swiss Franc have all been rising.
Concerns on China’s property developers’ financing and shadow banking
also add to the emerging market currencies rut, boosting the demand for
safe havens. On the other hand, the gold premium in Shanghai fell to
$3.60 below the London spot on Tuesday, indicating that the Chinese may
view the prices being too high currently.
What to Watch
We will monitor the U.S. January core PCE price index, the final
February China HSBC manufacturing PMI, and the February flash PMI of the
E18 on 3 March, the start of the Chinese NPC Meeting on 5 March, the
monetary decisions and announcements of the Bank of England and the ECB
on 6 March as well as the February U.S. non-farm payrolls and the
unemployment rate on 7 March.
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28 Feb 2014 | Categories: Gold
