While Ukraine Tension Remains, Gold Technical Positions Have Weakened
The U.S. Comex gold futures stabilized on Tuesday at $1,311.40 after
falling 1.86% on Monday and dropping 3.12% last week. The CRB
Commodities Index also rebounded 0.48% this week while the Dollar Index
has dropped 0.20% to 79.944 on Tuesday. Both the S&P 500 and the
Euro Stoxx 50 Indices initially dropped on Monday but recuperated almost
all their losses on Tuesday. The U.S. 10-year government bond yield
fell 2bp to 2.7490% from the recent peak reached last Wednesday after
the FOMC meeting.
Weaker Global Manufacturing Health in March
The March flash PMI for China dropped for the fifth month and was lower
than expected at 48.1. Rather than using fiscal policy to stimulate
growth, the Finance Minister said China would focus on the quality of
growth and the environment. While the market is worried about a debt
crisis in China, Morgan Stanley believes that the consumption and
services sectors in China are larger than actually thought and would
weather a slowdown in productivity growth. On the other hand, the
Eurozone March flash PMI was in line with estimates while that of the
U.S. declined from 57.1 in February to 55.5. The U.S. February New Home
Sales also slowed from 468,000 in January to 440,000.
Aggressive Gold Short-Covering
According to the CFTC, the managed gold net long combined positions have
risen 12.54% to 138,429 contracts during the week of 18 March, led by a
35.89% reduction in the net combined short positions. The sharp rise
in the net long gold positions and especially the recent quick reduction
in the short positions could weaken the gold’s technical position and
lead to gold price vulnerability. Nevertheless, gold’s role as a hedge
against emerging markets volatility has recently been highlighted by the
World Gold Council (WGC), especially against currency risks, tail risks
as well as global financial and contagion risks arising from developing
market crises. The WGC also concludes that an individual should hold
between two to ten percent of gold in their portfolios, depending on
their risk appetites.
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26 Mar 2014 | Categories: Gold
