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U.S. Monetary Policy Changes Dominate Greek Problems for Gold Investors

The U.S. Comex gold futures rose 0.14% in the past two days to $1,180.90 on Tuesday compared to 0.11% rise in the S&P 500 Index and the 1.39% drop in the Euro Stoxx 50 Index. The Dollar Index has been flat this week and ended at 94.999 on Tuesday. The ten-year German Bund yield has dropped 8bp to 79.5bp on Tuesday from its recent peak last Wednesday while the ten-year U.S. Treasury yield has declined even more by 17bp during the same period to 2.309% on Tuesday. However, the VIX index has risen from a recent low of 12.85% last Thursday to 15.39% on Monday and has declined slightly to 14.81% on Tuesday.

The Fed Meeting and Greece Resolution Drive Markets
With the upcoming FOMC meeting and the quarterly economic projections by the Fed on Wednesday, Bloomberg reported that the market will be looking for any changes in the number, presently two, of the officials who predict fewer than two rate hikes in 2015. This will indicate how likely the Fed will raise rates in September. While Greece has technically two more weeks to reach a deal, the European bond markets especially in the periphery countries are experiencing the contagion. For example, Italy assumes its ten-year bond yield at 1.6% for its budget while the ten-year yield has risen from a low of 1.128% in March to currently 2.33%, which will add to its budget deficit and its already huge debt burden.

Tactical Investors Focus on the U.S. Monetary Policy Changes
The fear of an interest rate hike this year has dwarfed the concerns of a Greek default for gold traders. In fact, the managed money total net combined gold positions fell 35% during the week ending 9 June, helped by a surge in the short positions by 31%. The SPDR Gold Trust holdings have dropped to this year’s low point as of 15 June to 701.90 metric tons while the physical demand has entered into a lull season in India.

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17 Jun 2015 | Categories: Gold

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