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The Market Favouring Oil over Gold

The U.S. Comex gold futures have surged 1.72% last week after rising 0.55% the week before. This week, the gold futures have fallen 0.16%, ahead of the FOMC announcements on Wednesday. This year, the gold futures have risen 5.80%. The S&P 500 Index has returned 0.30% while the Euro Stoxx 50 Index has dropped 0.23% in the past two days. The U.S. ten-year government bond yield rose almost 20bp this month to 2.652% on Tuesday. The Dollar Index has hardly moved this week while it has climbed 0.32% this month to 80.629 as of Tuesday. Year-to-date, the S&P 500 Index has climbed 6.08%, outperforming the gold futures but underperforming the oil futures, which have surged 8.07%.

The U.S. Accelerating or Not?
The gold market sold off on Tuesday as the consumer prices rose 0.4% in May, the largest monthly jump since February 2013, led by the energy and food cost increase. The yearly inflation rate is 2.1% compared to two percent in April. The May housing starts have topped one million for two months in a row. With mortgage rates falling recently and jobs rising, the housing outlook has also improved. However, on Monday, the IMF reduced its U.S. GDP growth forecast from 2.8% in April to two percent for this year and does not expect the zero interest rates to change that quickly after the Fed has finished tapering. According to Bloomberg, the interest-rate futures market is predicting a slower rise in interest rate than that projected by the Fed. On Wednesday, the Fed will release a new set of quarterly forecasts for inflation, unemployment, interest rates, and growth. 

Oil over Gold
In the past week, the Iraqi violence has pushed up both the gold and oil prices, with oil prices rising twice as fast as the gold prices. With the U.S economic growth expected to be higher next year and the crude oil inventories declining in the past two months, investors have been favouring oil as an alternative to stocks and bonds while the Fed tapering is putting a damper on the gold price increase. The SPDR Gold Trust holdings dropped almost five metric tons on Monday to 782.88. The holdings reached a low of 776.89 metric tons on 21 May. During the week of 10 June, the managed money gold net combined positions rose slightly by 0.42%, helped by more short covering. While the managed money oil net combined contracts are at this year’s high, the managed money gold net combined contracts have dropped 63% from this year’s peak.

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

18 Jun 2014 | Categories: Gold

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