Narrower Gold Trading Range and Gold Bears’ Fatigue
The Comex gold futures rose 1.38% this week after jumping 3.15% last week and ended at $1,153.80 on Thursday. By Asia Friday noon, the futures have declined 0.70%. The S&P 500 Index has fallen 1.31% and the Euro Stoxx 50 Index has dropped 4.32% week-to-Thursday. In the same period, the Dollar Index has rebounded 1.19% while the crude oil futures have gained 0.51%. The VIX Index pushed back up from 20.14% on Monday to 23.47% on Thursday. This week, the U.S. ten-year Treasury bond yield has remained flat at 2.127% on Thursday while the German ten-year Bund yield has rallied 6bp to 0.601% on Thursday.
More Clarity on Fed’s Policy
The Fed Chairman’s speech on Thursday has revealed Yellen’s strategy for the Fed’s monetary policy – starting the liftoff earlier but treading slower. She also suggested a lower unemployment rate would not only pull more workers into job-seeking but also get inflation higher. This year’s rate increase is still on the table. Gold reacted negatively after Yellen’s speech. However, the gold market should not overreact as the path of hikes is going to be gradual and the number of hikes may remain limited, based on the Fed’s outlook. In Japan, the August consumer prices excluding food actually fell 0.1% year-on-year, the first time since the BOJ has started its record asset purchases. Japan is fighting negative growth, weak household spending and investment in addition to deflation.
Gold Bears’ Fatigue
Managed money net combined gold positions have dropped 76% to 6,866 contracts during the week ending 15 September as the short positions rose 11.2% and the long positions fell 10%. On the other hand, Bloomberg reported that the open interest on the SPDR gold trust puts has fallen to the lowest level since mid-July, signaling some fatigue in the gold bears. Since mid-August, the gold futures have traded within a $60 range. In China, there are signs of gold inventory building as Hong Kong’s gold exports to China rose for three consecutive months and reached 67.9 tons in August. China’s Yuan devaluation and the stock rout may have stimulated the safe haven bid for gold.
What to Monitor
We will monitor the U.S. August core PCE price index on 28 September, the U.S. September consumer confidence index on 29 September, the Eurozone August unemployment rate on 30 September, the September final manufacturing PMI for China, the Eurozone, and the U.S. on 1 October as well as the Fed vice chair speech on monetary policy and the September U.S. non-farm payrolls and the unemployment rate on 2 October.
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