The Currency of Gold is Finding its Anchor
After declining 1.90% last week, the U.S. Comex gold futures dropped
another one percent week-to-Tuesday to $1,281.10. The price rebounded
0.30 percent during Asia Wednesday morning. The S&P 500 Index
climbed 0.79% this week while the Euro Stoxx 50 index jumped 1.39%. So
far in April, the European stocks were up 1.46%, the U.S. stocks were up
0.48% while the U.S. gold futures were down 0.18%. The U.S. ten-year
government bond yield hovers around 2.71% this week, almost no change
from the level at the end of March.
Dampening U.S. Housing Recovery and Subdue Chinese Data
The February U.S. housing prices increased 6.9% year-on-year, the lowest
rate of increase since January last year. The sales of existing homes
fell to 4.59 million in March compared to a recent peak of 5.38 million
in July 2013. Housing prices have risen as the bad winter weather has
limited the supply of houses. Prices have risen faster than wages,
dampening the housing recovery. However, the U.S. economic outlook in
the next three to six months unexpectedly jumped 0.8% in March compared
to 0.5% in February. In China, the flash HSBC manufacturing PMI
remained in a contraction mode at 48.3 in April. The slowdown in China
has led the government to announce more infrastructure spending and tax
relief as well as a cut of the reserve requirement ratio by two percent
for some rural banks.
The Changing Nature of Commodity Trading
Barclays, JP Morgan, Deutsche Bank, Bank of America, and Morgan Stanley
have all pulled back their global commodities trading activities as
regulators have tightened up trading rules for banks and raised their
trading costs. Trading revenue also fell by 18% in 2013 for the top ten
banks to $4.5 billion compared to $14.1 billion in 2008 based on
Coalition’s estimates. These banks are also consolidating their gold
trading with their foreign exchange trading in electronic trading
platforms as both markets are liquid and are heavily influenced by
macroeconomic policies, interest rates, and inflation.
Speculators’ Positioning
Managed money’s net combined gold positions fell for four consecutive
weeks to 90,137 contracts as of 15 April, led by a 15% jump in the short
positions. The gold-backed ETP holdings fell to a recent low of 1,735
metric tons, down from a recent peak of 1,769 metric tons a month ago.
In the short-run, the renewed tension between Ukraine and Russia on the
militants in Eastern Ukraine will help boost gold prices. In the
longer-run, the rising household demand in China for gold bars, coins,
and jewelleries and a possible reduction in gold’s import duty in India
will put a solid floor to gold prices.
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23 Apr 2014 | Categories: Gold
