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U.S. Data and Events Unfolding in Ukraine and India Boosted Gold

After declining for two consecutive weeks, the U.S. Comex gold futures have climbed 0.75% last week, led by last Friday’s jump of 1.47%. In the past two days, the gold futures have rallied 0.43% to $1,309.10, compared to a drop of 0.67% for the S&P 500 Index, a fall of 1.63% for the Euro Stoxx 50 Index, and a jump of 1.03% for the CRB Commodities Index. The U.S. ten-year government bond yield was unchanged for the week last week and further declined 4bp to 2.68% on Tuesday. The Dollar Index has also fallen from 80.423 last Friday to 79.752 on Tuesday.

Disappointing U.S. Data Pushed the Dollar Down
With the March U.S. non-farm payrolls reported on Friday at 192,000 instead of the expected 200,000, the Dollar Index has tumbled 0.9% in the next two days while gold and commodities have rallied. Speculators have also cut their bullish dollar bets from 241,987 contracts on 27 January to 9,207 contracts on 2 April as economic momentum in the U.S. has not picked up as expected. At the same time, the Bank of Japan has not added to its monetary stimulus and has turned more confident that the increase in sales tax last week would not crush the economy as in the case of 1997. Yen has rallied from 103.29 to 101.81 against the dollar since the news.

Demand for Gold from Events in Ukraine and India
The demand for gold has flared up as Russia has moved into a new phase in the conflict with Ukraine - pro-Russian separatists occupied government buildings in Eastern Ukraine while demanded a referendum on federalization. Putin is also banning agricultural goods from Ukraine, pushing up the natural gas price by a phenomenal 80%, and stepping up military pressure. In India, the BJP’s Narendra Modi, who is strongly supported by India’s jewellery and bullion associations, will likely win the election, making the reduction of import duty on gold more likely. He is widely believed to be able to push industrial reforms and more foreign direct investment into India, which bodes well for Indian wealth and therefore the demand for gold.

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09 Apr 2014 | Categories: Gold

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