Gold Prices Bounded by Stimulus Expectation and Weaker Physical Demand
The U.S. Comex gold futures reached $1,320.80 on Thursday before
settling at $1,314.90 at the end of the day, up 0.37% for the week.
Year-to-date, the gold futures have returned 9.37%, compared to 7.13%
for the S&P 500 Index, 1.28% for the Euro Stoxx 50 Index, and 3.08%
for the CRB Commodities Index. In the past two days, the S&P 500
Index has rebounded 1.11% while the Euro Stoxx 50 Index has climbed
1.14%. The Dollar Index has also surged this year by 1.94% to 81.588 on
Thursday. The ten-year German Bund yield plunged below one percent
briefly on Thursday while the U.S. ten-year government bond yield
dropped 2bp this week to 2.402% on Thursday as economic news from the
two countries was weaker than expected.
More Central Bank Stimulus?
Global economic recovery is facing headwinds with China’s financing
growth being much weaker than expected, the U.S. latest jobless claims
climbing to 311,000 compared to 295,000 expected, and the Eurozone
posting a zero percent growth in Q2 compared to 0.2% in Q1. The Bank of
England governor could hold interest rates constant for longer. Global
stocks and gold rallied as markets expect more monetary stimulus and a
prolonged period of low interest rates in the core markets. Russia
called for a cease-fire to deliver humanitarian aids across Ukraine’s
border.
Gold Demand Normalizing
While the hedge fund investor John Paulson has kept his SPDR gold trust
holdings unchanged for four consecutive quarters, the World Gold Council
reported that the gold demand has fallen 16% year-on-year in Q2, a
return to a normalized long-term trend after the gold demand surge in
2013. In particular, the gold jewellery demand, more than 50% of global
demand, fell 30% year-over-year. However, jewellery demand rose 11%
compared to Q2 2012 with China and India being the drivers. Total
investment demand rose four percent, helped by the big decline in ETF
outflows (about one-tenth) in Q2 2014 compared to a year ago. Central
banks have added gold for fourteen consecutive quarters.
What to Watch
Next week, we will watch the U.S. July inflation data and the July
housing starts on 19 August, the minutes of the Bank of England August
meeting and the FOMC July meeting on 20 August as well as the August
flash manufacturing PMI for China and the Eurozone, the U.S. August
Markit PMI, and the U.S. July Leading Indicators Index on 21 August.
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15 Aug 2014 | Categories: Gold
