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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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07 Mar 2014 | Categories: Gold, Dollar, Euro

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