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Weakening Safe-Haven Bids for Gold

The U.S. Comex gold futures touched a recent low of $1,203.30 on 17 February and ended at $1,208.60 on Tuesday, cutting the year-to-date gain to 2.07% from almost ten percent as of 22 January. This year, the Euro Stoxx 50 Index jumped 9.54%, the Dollar Index rose 4.20%, the S&P 500 Index climbed 2.30%, and the CRB Commodities Index fell 0.51%. The U.S. ten-year Treasury yield jumped almost 9bp in the past two days to 2.1379% on Tuesday while the ten-year German Bund yield rose 3bp to 0.372%.

Europe and Greece
Germany’s ZEW investor economic sentiment indicator has jumped from 48.4 in January to 53.0 in February compared to 55.0 expected. The European Commission forecasts that the Euro area will grow 1.3% in 2015 while Germany will grow 1.5%. On Tuesday, Bloomberg reported that Greece would likely request for an extension of the loan agreement for six months albeit with different programme terms. The rescue programme for Greece will expire at the end of February. If there is no agreement, capital outflow and the probability of Greece leaving the Euro will surge.

Physical Demand Slows
The Chinese will be celebrating the Lunar New Year holidays from Wednesday until next Tuesday, and the gold demand will taper off. In India, the market still expects a cut in the import duty. However, the World Gold Council estimated that India smuggled around 175 tonnes into the country in 2014. Barclays noted that the import duty cuts have to be large enough to increase demand beyond the smuggled gold. The traders will be looking for languages in the upcoming January FOMC minutes for the timing of the rate hike, which is a key driver of gold prices. The managed money net gold combined positions fell 17.31% during the week ending 10 February with the short positions jumping 13.33% and the long positions declining almost 14%. On the other hand, Barclays reported that this year’s ETP inflows reached 76 tonnes, reversing the outflows in Q4 2014.

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18 Feb 2015 | Categories: Gold

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