Gold Stabilizes; Focus on the Italian Election and the U.S. Sequestration
The U.S. Comex gold futures stabilized on Thursday and rose 0.27 percent
to around $1,583 upon Asia’s Friday open. The gold futures plunged
4.34 percent in the previous 5 trading days, with the prices reaching a
recent low of $1,554.30 during Asia’s Thursday open. Rumours of forced
selling by a hedge fund may have aggravated the decline in gold prices.
The CRB Commodity Index fell in three consecutive weeks by 3.91
percent. This week, the S&P 500 index dropped 1.14 percent while
the Euro Stoxx 50 index dropped 1.36 percent. The Dollar Index surged
1.09 percent this week.
Lively Debate Within the U.S. Fed
The release of the January FOMC minutes on Wednesday brought about gold
selling. The market particularly focused on the governors’ discussions
of the risks and costs due to additional asset purchases as well as the
problems such additional purchases would pose for both the QE exit
strategy and financial stability. The debate was quite balanced between
the early termination of the QE before the thresholds have been
breached and the risks caused by a premature stimulus removal. On
global recovery, the governors actually thought that no single country
can help to lift the pace of global recovery, suggesting that the worry
about global growth risks is still very much alive. Note that the Fed
Board and the Chairman still hold the key to monetary policy despite the
lively debate within the governors. Realistically, the pace of the
asset purchases will remain unchanged for the foreseeable future.
More Bearish Economic News
The E17 PMI composite fell from 48.6 in January to 47.3 in February,
leading to a fall in the Euro/Dollar. The February U.S. Philadelphia
manufacturing index fell much more than expected to minus 12.5 from
minus 5.8 in the previous month. With Chinese housing prices rising in
most cities for three consecutive months, more analysts are expecting
some tightening by the Chinese government this year.
Loads of Events to Watch Next Week
Important events to watch will include the Italian election on 24-25
February, the February China flash manufacturing PMI on 25 February, Ben
Bernanke’s testimony on 26 February, the February Germany unemployment
change on 28 February, and the start of the Single Supervisory Mechanism
framework for EU banks, the February U.S. ISM manufacturing index as
well as the automatic spending cuts in the U.S. on 1 March.
Kelly Smith
Sharps Pixley, London
www.sharpspixley.com
22 Feb 2013 | Categories: Gold
