Gold Underperformed in Q1; What to Expect in Q2?
The U.S. Comex gold futures dropped 4.83 percent in Q1 2013, the first
back-to-back quarterly losses since March 2000. In the past two days,
the gold futures retreated 1.18 percent to end at $1,575.90 on Tuesday
and were further down 0.5 percent during early Asian trading hours on
Wednesday. On the contrary, the Dollar Index rose 4.02 percent in Q1
and is trading above 83 on early Wednesday morning in Asia. The S&P
500 index returned a staggering 10.03 percent and outperformed the MSCI
All-Country index which returned 5.98 percent last quarter. The Euro
Stoxx 50 index declined 0.45 percent in Q1 as the European debt concerns
resurfaced. The U.S. 10-year government bond yield rose 9bp during
last quarter and remained around 1.85 percent this week.
Gold ETFs Holdings Decline Spooked Investors
Bloomberg reported that the gold-backed ETP holdings dropped 6.9 percent
in Q1 to 2,450 metric tons, the largest quarterly outflow since 2004.
Societe Generale recently called the gold market a "bubble" while gold
price will enter a bear market as a stronger U.S. recovery will likely
cut short the Fed stimulus effort and further strengthen the U.S.
dollar. The investment bank estimated that should the gold price drop
below $1,400, gold producers may start to hedge their production,
causing further fall in gold prices. Goldman Sachs has also recently
said that the gold price has peaked. Physical demand has weakened as
exemplified by a 23% drop of the U.S. Mint sales of gold coins in March.
Hedge funds have also reduced their positions in gold by 70% from the
level in October according to the CFTC data as of 26 March. They have
increasingly traded gold from the short side.
What to Expect for Gold Investors
While the Cyprus banking situation has been "contained" with the
government imposing strict control on deposits withdrawal, Barclays
noted that investors will price in a similar deployment in the weakest
banks in Europe, affecting their bond and equity prices. Gold traders
continue to watch if the ETP holdings will level off or continue to
fall. The last week of March saw a modest rise in ETP holdings.
Elsewhere in China, gold volume reached a record high in March as
prices dropped below $1,600. The market will focus on the ECB interest
rate and monetary policy decision and the BOJ target rate on 4 April as
well as the U.S. March non-farm payroll data and the unemployment
rate on 5 April for any changes in policy decisions.
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03 Apr 2013 | Categories: Gold
