After rebounding for three consecutive days, the U.S. Comex gold futures fell 0.87% on Tuesday and ended at $1,408.08. As of Wednesday Asian morning, the gold futures surged close to 1%. The Dollar Index traded above 83 on Tuesday and was up 0.40% in the past two days. The S&P 500 index and the Euro Stoxx 50 Index shot up 1.51% and 3.41% this week after falling 2.11% and 2.21% respectively last week. The CRB Commodity Index continued to fall in the past two days by 0.77% after dropping 1.40% last week.
Grimmer Global Growth Outlook
China kicked off with a weaker-than-expected April flash manufacturing PMI at 50.5 compared to 51.6 in March. According to Deutsche Bank, the slower growth is related to the anti-corruption campaign, the policy tightening in the real estate sector and the onset of the bird flu crisis. However, investment should reaccelerate in 2H of 2013. The April Eurozone composite PMI contracted for the fifteenth month at 46.5, likely pressuring the ECB to boost stimulus. The Bundesbank also projects that Germany‘s recovery will be delayed past Q1 due to the weaker industrial production growth and the extreme weather. The April U.S. Markit Preliminary PMI also was weaker than expected at 52 compared to the projected 53.9.
Weaker growth data from the U.S., China and Europe have caused the commodities to sell off. Industrial commodities were particularly hard hit. The market also fears a further slowdown in China, which does not bode well for the demand for gold. Year-to-date, the CRB Commodity Index dropped 4.75%. Goldman Sachs lowered its expectation on commodities in the next three and twelve months although it closed its well-timed recommendation to short-sell gold. Barclays pointed out that the net gold-backed ETP redemptions have reached 117 tonnes in April, the weakest month on record. Barclays calculated that about 270 tonnes of gold holdings were bought above the current prices, posing further downside risks on gold prices. However, the net short positions in gold have decreased, indicating that short-covering has taken place. India and China‘s physical demand has also responded very well to the cheaper gold prices. Gold volumes in the Shanghai Gold Exchange broke record for three consecutive days. High inflation, growing wealth and the gold culture in these emerging countries mean that gold will continue to be bought for the longer-term. In the words of Grant Williams, a fund manager, you have to distinguish between “the gold price,” which reflects the paper gold futures prices and has collapsed, and “the price of gold,” which represents the physical price of gold and has remained well-supported.