Yellen’s Dovishness and Policy Continuity Cheered Gold Market
The U.S. Comex gold futures rebounded 1.19 percent in the past two days to end at $1,286.30 on Thursday while the Dollar Index declined 0.21 percent to 81.023 at the end of Thursday. Week-to-date, the gold futures returned 0.13 percent compared to 1.19 percent in the S&P 500 Index, 1.45 percent in the Euro Stoxx 50 Index, and 4.60 percent in the Nikkei Index. The U.S. 10-year government bond yield declined 6bp this week to 2.69 percent on Thursday.
Yellen’s Testimony and Euro Area’s Fragile Recovery
The
gold and stock markets cheered on the words of Janet Yellen, the Fed
chairman nominee. In her testimony on Wednesday, she said that the Fed
should not withdraw the stimulus too soon in the face of a fragile
recovery and the already zero-bound interest rates, signaling her
continuity with Bernanke’s policy. The Fed Funds rate will remain low
even after the bond purchases have been pared back. Europe’s recovery
has stalled as the real GDP rose 0.1 percent in Q3 compared to 0.3
percent in Q2. France and Italy GDP both shrank 0.1 percent. These
suggest that the ECB will continue to be very accommodative. The third
plenary session in China seemed to have disappointed the market as
details are missing from the reform initiatives. Nevertheless, the
reform architecture is probably the most comprehensive and ambitious in
the history of the PRC according to Credit Suisse. In particular, the
government will allow the market to play a more “decisive role” in
resource allocation.
Q3 Gold Demand
The
latest World Gold Council report shows that the consumer demand in
jewellery, bar and coin has risen 26% year-on-year in the first three
quarters of 2013. The strength in the consumer demand was more than
offset by the ETF divestment and the Indian gold demand clampdown by the
government. Barclays pointed out that the market surplus is at its
widest since 2005 prompted by the falling demand. The key factors to
watch will remain the Chinese demand, the Indian demand, and the
investment flows.
What to Watch
Next week,
we will watch Bernanke’s speech, the U.K. MPC decisions, the October
FOMC minutes release as well as the US October CPI, retail sales and
existing home sales on 20 November. We will also monitor the Bank of
Japan interest rate decision, Draghi’s speech, and the E17 November
flash PMI on 21 November as well as the Germany November IFO business
climate index on 22 November.
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15 Nov 2013 | Categories: Gold
