The U.S. Economic Tone Has Dictated Gold Price Movement
While the U.S. Comex gold futures climbed $3 this week to end at
$1,575.10 on Thursday, the global stocks and commodities markets surged
in the past week. The S&P 500 index jumped 1.71 percent, the Euro
Stoxx 50 surged 2.83 percent and the MSCI World Index rose 1.65 percent.
The CRY Commodities index also inched up 0.82 percent this week.
After rising for four consecutive weeks, the Dollar Index retreated 0.28
percent week-to-Thursday.
Central Bank Meetings Set the Tone This Week
The outgoing Bank of Japan governor did not change the asset purchases
program at his final BOJ meeting, leaving his successor lots of room to
stimulate aggressively. Bloomberg reported that in the past five years,
the BOJ increased its balance sheet only by 50% compared to 250% by the
U.S. Fed and 200% by the ECB, suggesting that the BOJ can still do a
lot more to end deflation. The Bank of England did not change the size
of the bond-purchase program either. The ECB governor kept the policy
rate unchanged as well even though the ECB governor has revised down his
GDP growth forecast for the Euro-17 by 0.2 percent to -0.5 percent in
2013 and has further revised down the 2014 growth to one percent. He
believes that inflation will be 1.3 percent instead of 1.4 percent in
2014. Although the central banks did not ease further, economic news
remain far from bullish, giving hope to gold investors for further
stimulus down the road.
Stronger Economic Data Present Headwind for Gold
Better macro data have been released in the U.S. The weekly jobless
claims unexpectedly fell by 7,000 to 340,000, reaching a six-month low.
Based on the recent Federal Reserve Flow of Funds report, household
wealth rose to a five-year high in Q4 2012 due to rising home prices.
The networth level peaked at $67.4 trillion compared to the current
level of $66.06 trillion. The underlying improving tone in the U.S.
economy has prompted investors to buy equities and reduce their bets on
gold prices. Even Japan reported a much higher-than-expected GDP growth
of +0.2 percent in Q4.
Upcoming Data to Watch
The key data to watch will include the U.S. non-farm payrolls and the
unemployment rate on 8 March, the February China industrial production
data on 9 March, the February U.S. retail sales on 13 March, the EU
summit in Brussels on 14 to 15 March and the February U.S. industrial
production data on 15 March.
Kelly Smith
Sharps Pixley, London
www.sharpspixley.com
08 Mar 2013