Gold Buyers Cheer as the Dollar Falls
The U.S. Comex gold futures rebounded 1.33 percent in the past two days
to $1,415.80 on Thursday while the Dollar Index plunged 1.49 percent to
finish at 81.537 on Thursday. The Japanese Yen rallied about 3 percent
against the U.S. Dollar just in the past two days. The stock markets
remain volatile with the S&P 500 index dropping 0.5 percent and the
Euro Stoxx 50 index falling 3.37 percent this week. The VIX, or the
fear index, has risen from 12.5 percent in mid-May to a recent high of
17.5 percent on 5 June.
ECB Actions and the U.S. Dollar
On Thursday, the ECB decided to leave the interest rates unchanged at
0.5 percent and would not take any immediate actions such as negative
deposit rates or cash lending to institutions to further boost the
economy. The U.S. stock investors were initially disappointed that no
further stimulus measures are taken despite big promises from the ECB
governor and an expected 0.6 percent contraction in the Euro Area this
year. The Outright Monetary Transactions program is yet to start. In
the U.S., the May ADP employment increased 135,000 versus an expected
165,000. The Dollar weakened further against the Euro. For Friday’s
employment report, Bloomberg shows an expected change in non-farm
payrolls of 163,000 and a projected unemployment rate of 7.5 percent.
Gold Fund Flows
As stock prices wobble and the U.S. Dollar falls, the number of gold
traders who are expecting a jump in the gold price next week rises to
the highest since mid-March according to Bloomberg. Nevertheless, the
investors in paper gold continue to sell. Year-to-date, investors have
sold 495 metric tons of gold-backed ETPs. EurekaHedge reported that 20
gold hedge funds have closed doors so far this year. However in China,
the gold price premiums to international prices jumped from an average
of $7 in the year ending mid-April to an average of $31 after April when
the gold prices plunged.
What to Watch
Apart from watching the U.S. nonfarm payrolls report on Friday, we will
also monitor China’s May industrial production and inflation data on 9
June, Japan’s BOJ Target Rate on 11 June, The April E-17 industrial
production on 12 June, the May U.S. retail sales on 13 June and the May
U.S. industrial production on 14 June.
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