The Shorts in Gold are Exiting
After rebounding for three consecutive days, the U.S. Comex gold futures
fell 0.87 percent on Tuesday and ended at $1,408.08. As of Wednesday
Asian morning, the gold futures surged close to one percent. The Dollar
Index traded above 83 on Tuesday and was up 0.40 percent in the past
two days. The S&P 500 index and the Euro Stoxx 50 Index shot up
1.51 percent and 3.41 percent this week after falling 2.11 percent and
2.21 percent respectively last week. The CRB Commodity Index continued
to fall in the past two days by 0.77 percent after dropping 1.40 percent
last week.
Grimmer Global Growth Outlook
China kicked off with a weaker-than-expected April flash manufacturing
PMI at 50.5 compared to 51.6 in March. According to Deutsche Bank, the
slower growth is related to the anti-corruption campaign, the policy
tightening in the real estate sector and the onset of the bird flu
crisis. However, investment should reaccelerate in 2H of 2013. The
April Eurozone composite PMI contracted for the fifteenth month at 46.5,
likely pressuring the ECB to boost stimulus. The Bundesbank also
projects that Germany’s recovery will be delayed past Q1 due to the
weaker industrial production growth and the extreme weather. The April
U.S. Markit Preliminary PMI also was weaker than expected at 52 compared
to the projected 53.9.
Commodities’ Actions
Weaker growth data from the U.S., China and Europe have caused the
commodities to sell off. Industrial commodities were particularly hard
hit. The market also fears a further slowdown in China, which does not
bode well for the demand for gold. Year-to-date, the CRB Commodity
Index dropped 4.75 percent. Goldman Sachs lowered its expectation on
commodities in the next three and twelve months although it closed its
well-timed recommendation to short-sell gold. Barclays pointed out that
the net gold-backed ETP redemptions have reached 117 tonnes in April,
the weakest month on record. Barclays calculated that about 270 tonnes
of gold holdings were bought above the current prices, posing further
downside risks on gold prices. However, the net short positions in gold
have decreased, indicating that short-covering has taken place. India
and China’s physical demand has also responded very well to the cheaper
gold prices. Gold volumes in the Shanghai Gold Exchange broke record
for three consecutive days. High inflation, growing wealth and the gold
culture in these emerging countries mean that gold will continue to be
bought for the longer-term. In the words of Grant Williams, a fund
manager, you have to distinguish between “the gold price”, which
reflects the paper gold futures prices and has collapsed, and “the price
of gold”, which represents the physical price of gold and has remained
well-supported.
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24 Apr 2013 | Categories: Gold
