Gold struggling against growing interest in rising equities

After rising for two consecutive weeks, the U.S. Comex gold futures fell 1% week-to-Tuesday to $1,448.80 although prices touched $1,458 on Wednesday Asian morning. The story of the week is still rising equities, with the S&P 500 index climbing 0.71% after rising 2.03% last week and the Euro Stoxx 50 index rising 0.2% after surging 2.99% last week. So far in May, the S&P 500 index, the Euro Stoxx 50 index and the MSCI World index have jumped 1.78%, 2.10% and 1.08% respectively. The gold futures have slipped 1.58% this month while the Dollar Index has risen 0.62%.

Better Data from the U.S., Europe and China

Last Friday, the U.S. reported a higher-than-expected rise in nonfarm payrolls of 165,000 in April. The unemployment rate also inched down 0.1% to 7.5% in April. In Europe, the ECB governor stands ready to cut interest rates again, paying close attention to all the economic data in the next few weeks. The ECB predicts the EU-17 economies will shrink 0.4% in 2013. However, Germany's March factory orders surprisingly jumped 2.2% against a predicted drop of 0.5%, indicating a recovery is taking place. China reported a larger than expected jump in exports of 14.7% in April although several economists already pointed out that some capital flows may have been disguised as trade flows leading to the inflated exports numbers. Nevertheless, imports rose 16.8% year-on-year, reflecting a pretty robust domestic demand picture. In fact, Hong Kong has just reported that China's gold imports from Hong Kong reached a record high of 223.52 metric tons in March before the large sell-off in gold in April. The China Gold Association stated that China is currently short of gold jewelry inventory after gold purchases surged in April.

Fund Holdings

Bloomberg reported that for the week ending April 30, speculators in gold increased their net-long positions in options and futures by 19% while they decreased their net-short positions by 9.2%. However, the net-short positions are still more than three times the average since the data started in 2006. The gold-backed ETP holdings dropped further on Monday to 2,254.68 metric tons, after a record fall in April and a peak in December 2012. Given the reduction of tail-risk in Europe, the rising labor market in the U.S. and the low inflation rate, investors prefer equities to gold in the near-term. Nevertheless, as the World Gold Council pointed out, gold still has a place in investors' portfolios as a hedge against the consequences of the on-going global quantitative easing.

About the Author
Austin Kiddle

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

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