Will Gold Hold On to its Spectacular Gains this Quarter after Crimea?
Having risen 3.05% last week, the U.S. Comex gold futures have dropped
1.45% in the past two days while the S&P 500 Index and the Euro
Stoxx 50 Index have rallied 1.69% and 2.3% respectively. The CRB
Commodities Index stays flat this week after a 1.4% drop last week. The
Dollar Index has barely moved with the level stuck at around 79.40.
The U.S. 10-year government bond yield has traded in a range between
2.60% to 2.80% in the past two months and has rallied 10bp to 2.67%
since 7 March. As risk aversion has risen, the safe-haven bid for U.S.
Treasuries has also climbed.
Global Stocks Rebound
Russian President Putin’s comments that he will not split up Ukraine and
the better U.S. economic data have boosted global stocks this week but
weakened gold demand. A string of economic releases shows that the U.S.
economy has stabilized after the bad winter weather. The February
industrial production jumped 0.6% after declining 0.3% in February. The
housing starts in February dropped slightly to 907,000 from the
revised-up level of 909,000 in January. February inflation rose 0.1%,
in line with the expectation while the core inflation has risen 1.6%,
the same level as January. The market is also expecting the Fed to
continue to cut bond purchases by $10 billion a month after the FOMC and
to switch from the 6.5% unemployment threshold to a forward qualitative
guidance. Going forward, the monetary policy will most likely be
linked to a range of economic indicators. If this is the case, the
strong correlation between the daily gold price swing and the
unemployment data will diminish, according to Barclays.
Investors’ Positioning and China’s Gold Reserves
The CFTC reported that the net long combined gold positions by
speculators rose four percent during the week of 11 March, led by a 20%
reduction in the short positions. The total gold-backed ETF holdings
according to Bloomberg have risen in three consecutive weeks, lending
downside support to the gold prices. A recent Bloomberg Industry study
shows that the gold reserves in China may be as high as 5,086 metric
tons, compared to the official level of 1,054 metric tons, based on the
net imports data from Hong Kong and China’s domestic output, reflecting
the move by the Chinese to establish the Renminbi as a global currency.
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19 Mar 2014 | Categories: Gold
