Watching Physical Demand Response Closely as Gold Prices Plunge
The U.S. Comex gold futures have dropped for seven consecutive days and have declined 2.47% this week, ending at $1,142.60 on Thursday. As of Asia Friday morning, the gold futures have dropped another two dollars. This year, the gold prices have fallen five percent. The Dollar Index went from strength to strength, rising 1.26% this week and around ten percent this year. In the past two days, the S&P 500 Index and the Euro Stoxx 50 Index have rebounded 1.02% and 2.26% respectively. This week, the U.S. ten-year government bond yield has risen 5bp to 2.386% on Thursday while the German ten-year Bund yield has dropped 1bp during the week to 0.825%. The crude oil futures rose from the recent trough of $75.84 to $77.91 on Thursday.
Market Reactions to the ECB and BOE Meetings
The ECB President said that the ECB will continue to stimulate and increase the size of its balance sheet to the level seen in March 2012, adding around one trillion Euros of assets. The Euro then plunged 0.89% to the lowest level since August 2012. Still, it is difficult to see how the council can approve the direct purchases of sovereign debt to reflate the European economy. The Bank of England decided not to change interest rates, resulting in the British Pound falling 0.90% on Thursday. In the U.S., the weekly jobless claims fell 10,000 for the week, beating expectations. The gasoline prices in the U.S., which has fallen to a four-year-low, will continue to support consumer spending. Market will focus on the October U.S. non-farm payrolls and the unemployment rate on Friday.
China Eyeing Low Gold Level
The managed money combined net gold positions have declined 6.6% during the week ending 28 October to 70,298 contracts, after rebounding from a recent trough of 37,275 contracts in the first week of October. As gold prices have slumped, China’s gold imports from Hong Kong in September have jumped to the highest level in five months. The All India Gems & Jewellery Trade Federation expects that the Q4 gold imports can surge 75%. While many Wall Street analysts are predicting that the gold prices will sink to the $1,000 level, China retail demand is expected to sweep up gold at that level.
What to Watch
We will monitor the October China trade data on 8 November, the Spain Catalonia referendum on 9 November, China’s October inflation and M2 growth on 10 November, the Eurozone September industrial production data on 12 November, the ECB monthly bulletin and China’s October industrial production, fixed asset investments, and retail sales on 13 November as well as the preliminary Q3 GDP for Germany, Italy, and France on 14 November.
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