Gold Trading Weaker while Views about the Fed Diverged
The U.S. Comex gold futures broke a five-day losing streak and rose 0.66% on Thursday after falling 1.67% on Wednesday and ended at $1,109.30 on Thursday. The futures were down 1.03% week-to-Thursday while the S&P 500 Index was up 1.65% and the Euro Stoxx 50 Index rose 1.29%. The Dollar Index has dropped 0.80% this week as the market awaits the Fed’s decision next week. The U.S. ten-year Treasury bond yield rose 10bp this week to 2.222% on Thursday while the German ten-year Bund yield rose 3bp to 0.693%. The crude oil futures were down 0.28% this week.
Confusion about the Fed’s Move
The unemployment claims in the U.S. fell 6,000 to 275,000 during the week ending 5 September. The claims have stayed below 300,000 for the past six months, a healthy sign for the labour market. Still, the views about the Fed rate hikes are as divergent as ever. Bloomberg reported that about half of the economists surveyed believed that the Fed would raise rates next week while the Fed Funds futures said that the probability of a rate hike was only 28% as of the end of Thursday. The Bank of England’ MPC at their September meeting brushed off emerging markets weakness and global market turmoil and still expected to raise rates next year given their outlook for the economy.
India’s Plan to Cut Gold Imports
The Indian Prime Minister approved the plan to sell gold-backed bonds, which would allow the citizens to deposit their bullions stashed at homes, estimated to be 20,000 metric tons, and earn an interest. With this scheme, the government wants to cut gold import by 300 tons to reduce its current account deficit. But it is not clear that the interest rate will be high enough to lure people to part with their physical gold.
What to Monitor
We will monitor China’s August retail sales, industrial production, and fixed asset investments on 13 September. We will also watch the U.S. August retail sales and industrial production on 15 September, the U.S. August CPI on 16 September as well as the U.S. August housing starts and the FOMC rate decision and press conference on 17 September.
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