Buy the Dip on Gold if Fed Raises Rates?
The Comex gold futures have fallen in three consecutive weeks by almost five percent and are flat so far this week, ending at $1,102.60 on Tuesday. The Dollar Index has also fallen last week by 1.08% but has risen 0.44% to 95.611 as of Tuesday. After plunging 12% from its recent peak to trough, the S&P 500 Index has rebounded 6.07% while the Euro Stoxx 50 Index has also recovered 4.37% from its recent trough. However, the U.S. ten-year Treasury bond has widened from just two percent on 24 August to currently 2.288% while the German ten-year Bund yield has been range-bound from 0.60% to 0.80% and ended at 0.74% on Tuesday. The VIX Index has declined from over 50% at the end of August to 22.54% on Tuesday.
Latest Chinese and U.S. Data
China’s August macro data continue to be on the weak side. The year-to-date fixed asset investment slowed to 10.9% from 11.2% in July while the industrial production also underperformed expectations, rising 6.1% year-on-year. Retail sales remain the bright spot at 10.8%. The good news is that the government continues to announce fiscal policy support and more infrastructure investment to prevent GDP from slowing down more aggressively. In the U.S., the August retail sales rose 0.2%, lower than the expected 0.3%. However, the economists are expecting the U.S. CPI to fall about 0.1% in August while the July PCE core only rose 1.2% year-on-year, dampening the case for a rate hike in September. Some economists are even calling for a mere one-eighth of a percent rise in September just to kick off the cycle.
Some Support for Gold
After rising abruptly in the past five weeks, the managed money net gold positions have declined 36% to 28,286 contracts during the week ending 8 September as the short positions rose 18%. The SPDR Gold Trust holdings have fallen five metric tons in September after rising almost ten metric tons in August. However, there has been physical tightness in gold for immediate delivery in both London and Singapore and also at the retail level. Market participants are eyeing the Fed on 17 September – if they indeed raise rates, gold prices will likely react negatively, but traders can expect to buy the dip.
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