The Unexpected Rise of Gold and Commodities to the Top This Year
The U.S. Comex gold futures rebounded 1.04% in the past two days, ending
above $1,350 on Thursday. The S&P 500 Index jumped almost one
percent this week. The Euro Stoxx 50 Index rebounded 0.26% in the past
two days although it has declined 0.15% for the week. The biggest
surprises this year have been the surge in the commodities and the gold
prices with the CRB Commodities Index jumping almost ten percent this
year and the gold futures surging 12.4%. The Euro/Dollar rose 0.93% to
1.3861 on Thursday, a level last seen in October 2011. Accordingly, the
Dollar Index has dropped 0.63% in the past two days.
No ECB Actions Spur Euro Gains and Dollar Weakness
Data coming out of the U.S. were mixed on Thursday. While the market
cheered on a better than expected initial jobless claims of 323,000
compared to an expected 335,000, the Q4 productivity growth and the
January factory orders were worse than expected. As inflation has not
slowed further and the Euro zone growth has improved, the ECB President
decided to keep the interest rates unchanged at 0.25% and expects the
2014 and 2015 growth to be 1.2% and 1.8% respectively. The ECB predicts
that the inflation will double to 1.7% in 2016 from the latest rate of
0.8%. However, the ECB also stated that the rise in the Euro/Dollar
since 2012 has led to a 0.4% decline in the inflation rate. Any further
jump in the Euro/Dollar and the continued slack in the Euro zone will
cause the ECB to loosen policy again. In the near term, the Euro/Dollar
strength and the Dollar weakness help to support gold prices.
Commodities and Gold Reclaim Top Spots
According to the Bloomberg world currency ranking, gold, silver, and
palladium occupy the top three spots in the Top of the Pops this year.
Extreme weather, drought, the Ukrainian crises, and cheap valuation have
propelled the precious metals and the other commodities prices higher.
Gold’s safe haven status has been reinforced while the fabrication
demand for gold has continued to be strong in the East. The caveat is
that the higher prices can deter the buyers from the East as shown in
the Shanghai gold price premium’s fall since the peak at the end of
2013.
What to Watch
We will monitor China’s February trade data on 8 March, China’s
inflation data on 9 March, China’s February M2 growth on 10 March, the
ECB Executive Board Members speeches and the E18 January industrial
production data on 12 March as well as the ECB monthly bulletin, China’s
February industrial production, and the U.S. February retail sales on
13 March.
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