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Waiting Game for Gold

The U.S. Comex gold futures reached the lowest level since March this year on 7 July and rebounded to $1,159.20 on Thursday, falling 0.37% week-to-Thursday, compared to -7.29% for the crude oil futures. This week, the S&P 500 Index fell 1.19% while the Euro Stoxx 50 Index dropped 1.2% and the Dollar Index rose 0.5 point. The U.S. ten-year Treasury bond yield jumped 13bp on Thursday to 2.321% while the German ten-year Bund yield rose 5bp to 0.717%. Both yields fell for the week. The VIX Index continues its ascent from 16.79% end of last week to 19.97% currently.

Weaker Growth Back on the Agenda
The latest U.S. weekly jobless claims rose 15,000 to 297,000, the highest level since February. The market was expecting 275,000 although the actual number has been below 300,000 for 18 months. The IMF has cut its recent forecast for the 2015 world GDP growth from 3.5% in April to 3.3% due to a markdown in the U.S. growth from 3.1% to 2.5%. Next year, the world is expected to grow 3.8%. The Bank of England held the interest rate at 0.5% citing acute risks coming from Greece, a stronger Pound, and falling oil prices. Concerns about the Chinese growth have also sprung up as the stock prices have collapsed by about 28% since the peak on 12 June. However, the Chinese only hold about 20% of their liquid wealth in stocks compared to 55% in bank deposits, and the stock market collapse is unlikely to affect consumption.

Gold Activities
The SPDR Gold Trust holdings fell from a recent high of 713.23 metric tons on 25 June to 707.58 metric tons on Thursday, indicating little revival in the gold’s safe haven status. However, the daily volume and physical deliveries in the Shanghai Gold Exchange have surged since the end of June. Also, the market is now leaning a bit more towards the Fed not raising rates this year due to the global market developments and the strong dollar.

What to Monitor
We will monitor the Fed’s chair speech on 10 July. We will also watch the reactions of the EU leaders to Greece’ latest bailout requests, which include a debt relief, on 12 July, the June trade data from China on 13 July, Yellen’s testimony and China and the U.S. Jun industrial production data on 15 July, the ECB interest rate decisions and press announcement on 16 July as well as the U.S. June inflation data on 17 July.

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10 Jul 2015 | Categories: Gold

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