The U.S. Comex gold futures fell 2.32% in the past two days after rallying 2.71% on Monday and Tuesday, up 0.34% for the week. In January and February, the gold futures dropped 5.83% while the MSCI All Country Equity Index rose 4.66%. Gold prices have dropped for five consecutive months while the Dollar Index has risen 2.73% year-to-date. The S&P 500 Index and the Euro Stoxx 50 Index are almost unchanged while the Dollar Index rose 0.57% to 81.949 this week.
Economic Optimism and Investors' Returning Risk Appetite
In the past few days, positive economic data from the major economies have accompanied the falling safe-haven demand for gold. A February Chicago business report rose higher than expected, the January U.S. durable goods excluding transportation equipment rose 1.9% compared to the 0.2% expected, the jobless benefits fell last week to a much-lower-than-expected 344,000 while the Q4 GDP was revised to an annualized 0.1% from -0.1%. The February German unemployment data fell by 3,000 to 2.92 million, revealing a better labor market. Faster economic recovery has raised investors' risk appetites for global equities instead of gold. Gold-backed ETP holdings level has fallen to a 5-month low at 2,508.5 tons.
Global Central Banks' Stimulus Plans Still Support Gold Prices
This week, the U.S. Fed Bernanke has indicated that the $85 billion per month of asset purchases will continue and is not overly concerned about rising inflation or asset bubbles. Fed Governor Evans (voter) said today that the Fed should not deviate from its goal and end stimulus too soon because there are still a lot of downside risks in the economy. In fact, the IMF expects that the sequestration, which will be likely be effective on March 1, will knock down U.S. GDP growth by 0.5%, resulting in a 2% GDP growth in 2013. In Japan, the newly appointed BOJ governor Kuroda may step up monetary stimulus effort by bringing forward the open-ended bond purchases to May or June according to JP Morgan's Japan economist. In the U.K., the Bank of England Governor voted for more QE while the rating agency Moody's said that the U.K.'s economic growth would continue to be sluggish for years.
What to Watch
Upcoming events we are watching include the ongoing Italian election impasse, Ben Bernanke's speech on March 2, the Bank of Japan interest rate meeting, the Bank of England monetary policy decision and the ECB interest rate announcement on March 7, and the Chinese trade growth and the U.S. non-farm payrolls on March 8.