Gold rises ahead of four key government events next week

Gold futures prices have gone up for five consecutive days, ending at $1,619.6 as of Thursday, up almost 1.8%. This morning in Asia, gold futures traded higher to $1,625. The S&P and the Stoxx went up 0.26% and 0.2% respectively, while the CRB Commodity Index fell 0.3% this week. The Dollar Index has continued to weaken, dropping 0.6%, while the EUR/USD went up 0.9% week-to-date.

This year, gold futures are up 3.4%, beating the performance of other "safe havens" such as the Dollar Index, which is up 2.3%, and the U.S. 7-10 year Government Bond, which is up 3.1%. Gold futures have underperformed the 10-year German Government Bond which has returned 3.9% this year. However, German government bond prices have come under more pressure recently as the European debt crisis worsens - the Spanish 10-year government bond yield went up to 6.92% on Thursday after Moody's downgraded the country's credit rating 3 notches to Baa3, one level above junk-bond status. The rising borrowing costs could push Spain to request a full-blown sovereign bailout, with contagion to countries such as Italy, Portugal and France.

The soft economic data from the U.S. may suggest that the Fed will consider more quantitative easing measures when the FOMC meeting will take place on 19-20 of June, as rising gold prices seem to be implying. U.S. jobless claims rose by 6,000 to 386,000 last week, while the cost of living fell 0.3% in May. U.S. retail sales also dropped for a second month.

In India, gold futures of 99.5% purity continue to trade up, reaching an all-time high of 30,113 Rupee per 10 grams on Thursday. Gold futures rose 10% year-to-date in India. Rising excise duty and prices have dampened the gold Indians' gold demand; May imports of gold and silver fell 52% year-on-year. Nevertheless, long-term demand remains strong as Indians' gold holdings are estimated to be worth 50% of India's GDP, and gold is a vital part of an Indian family, according to a recent Morgan Stanley survey.

No matter what the outcomes of the June 17 Greek re-elections, the June 18-19 G20 Summit and the June20  FOMC and MPC interest rate decisions will be, global efforts to combat the credit crisis seem to be rising, as well as the bid for gold.

About the Author
Austin Kiddle

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.

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