The Quadruple Whammy on Gold Lately
The U.S. Comex gold futures received a severe blow on Thursday and were down 2.15% for the day to $1,198.60, turning the year-to-date gain into a slight loss of 0.31%. The gold futures fell 2.70% this week compared to a gain of 1.55% in the S&P 500 Index and a gain of 0.18% in the Euro Stoxx 50 Index. The CRB Commodities Index has rebounded 0.92% this week. The Dollar Index has risen for two consecutive weeks to 86.147 on Thursday after a rout in the first half of October. Year-to-date, the Dollar Index has surged 7.64%. The U.S. ten-year Treasury bond yield has risen 3bp this week to 2.306% on Thursday while the German ten-year Bund yield has fallen almost 5bp this week to 0.843%.
The FOMC, U.S. GDP, and Oil
The gold prices got hit by a quadruple whammy in the past two days. First, the Fed, while keeping the “considerable time” language for the low interest rates, has decided to end QE3. The recent U.S. labour gains are supporting the economic recovery despite the global headwinds, helping the U.S. Dollar to rally. Second, the U.S. Q3 GDP grew at an annualized 3.5%, beating the forecast of three percent and raising the interest rate hike expectation. Third, as oil prices continue to fall, inflation will also decline, which hurts the demand for gold. Also, Bloomberg reported that China has increased the scrutiny of its precious metals and foreign exchange trades and has found erroneous gold-backed loans worth $15.2 billion back in June, which could impact China’s near-term demand for gold.
The Wall Street analysts are calling for the gold prices to drop to between $1,000 and $1,050 by the end of year. The SPDR Gold Trust holdings have also dropped 7.6% during the past three months to 741.20 metric tons on Thursday. However, the CEO of Goldcorp believes that the Asian buyers will support the gold prices and keep them in the range of $1,200 to $1,400 within the next year. Goldcorp reported a higher than expected Q3 loss and a lower production.
What to Watch
We will monitor the Dallas Fed’s speech and the October final manufacturing PMI of China, the Eurozone, and the U.S. on 3 November, the ECB’s interest rate announcement and press conference and the U.K. monetary policy decision on 6 November as well as the September industrial production of Germany and France and the October U.S. non-farm payrolls and the unemployment rate on 7 November.
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31 Oct 2014 | Categories: Gold