Dovish Fed and Stock Valuations Help Gold
The U.S. Comex gold futures jumped 1.12% to $1,320.50 on Thursday after
falling 0.24% the day before. Week-to-date, the gold futures have risen
1.30% while the S&P 500 Index and the Euro Stoxx 50 Index have
plunged 1.67% and 2.29% respectively. The Dollar Index has also tumbled
for five consecutive days by 1.36% to 79.383 on Thursday while the U.S.
ten-year government bond yield has rallied 7bp this week to a low of
2.6474%, back to the level at the end of February.
Dovish Fed and Chinese Imports
In the March FOMC minutes, not only did the 6.5% unemployment rate
threshold was let go but also several committee members were concerned
that the higher projected median interest rates by the Fed members would
convey a faster pace of tightening than was actually the case. The Fed
Chairman Yellen urged the market participants to focus on the wording
of the Fed Statement rather than the interest rate forecasts. All
markets rallied on a sigh of relief that the Fed will keep its promise
to hold interest rates for a considerable period of time. In China, the
government takes another step to open up its economy by allowing the
mainland Chinese investors to buy Hong Kong stocks through the Shanghai
Stock Exchange and also allowing the foreign investors to buy into
mainland stocks through Hong Kong. On the other hand, the analysts have
brushed aside the poor March trade data from China, citing that the
fake invoices have exaggerated the trade numbers before June last year.
According to the CFTC, the net combined long managed gold positions have
declined for a second week by 11.4%, led by two consecutive weeks of a
rise in the short positions. Traders are being swayed by the possibility
of a stronger U.S. economy, the overvalued U.S. stocks, and the
geopolitical risks in Russia-Ukraine. In the short-term, gold prices
will again become tied to the FOMC policy expectations while gold will
also act as a hedge against stocks.
What to Watch
We will monitor the Eurozone February industrial production and the
March U.S. retail sales on 14 April, the Fed Chairman’s speech and the
U.S. March inflation data on 15 April as well as Yellen’s speech,
China’s March industrial production and fixed asset investments, and the
March U.S. housing starts and industrial production on 16 April.
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