The U.S. Comex gold futures surged 1.72% on Wednesday but retreated 0.35% on Thursday to $1,468.60. Gold weakened further by about 0.60% during Friday Asian morning. From the recent trough, the gold futures have rebounded 11%, but were down 12.4% year-to-date. The S&P 500 index and the Euro Stoxx 50 index inched up 0.04% and 0.15% in the past two days. The Dollar Index surged 1.10% on Thursday as the Euro/Dollar fell 0.84% while the Dollar/Yen declined 1.60% to breach 100 the first time in four years.
Jobless Claims, Inflation and Yen
Recent economic data from the U.S. have dampened the rebound in gold prices. The U.S. reported that jobless claims fell 4,000 to 323,000 in the week ending May 4, with the average claims over the past month back to the pre-recession level in 2007. The U.S. consumer sentiment is at a five-year high while payrolls improved again in April. The Chicago Fed, however, wanted to see a monthly job growth of at least 200,000 continuously for six months before calling a sustainable labor market recovery. The April Chinese inflation climbed to 2.4% because of rising food prices. Inflation is expected to increase further as the government plans to relax the constraints on utilities and resources. Many economists do not see further monetary stimulus from China given the country wants to restrain credit growth and improve the quality of economic growth. As the BOJ is purchasing more bonds to reach its two percent inflation target and the dollar continues to strengthen, the Dollar/Yen crossed the important level of 100 on Thursday, representing the 50% retracement between the 2011 high of 75.35 and the 2007 trough of 124.14. The yen is expected to weaken further.
The First Gold ETP Rise in Five Weeks
During the week ending May 9, the gold-backed ETP holdings rebounded 0.1% to 2,241.708 metric tons, the first rise since the beginning of April. In India, gold imports will likely top 100 tonnes in May after rising the same amount in April. The weaker gold prices, the concern that the central bank may restrict banks' gold imports as well as the festival of Akshaya Tritiya next week all help to boost the gold demand. The Bank of America tallied that the global central banks have cut rates 511 times since June 2007, and still have an easing bias as recovery is weak and inflation is low. Low real rates should help to support gold prices while inflation will tic up at some point given all the liquidity.
Data to Watch Next Week
The market will focus on Ben Bernanke's speech this Friday. Next week, we will watch China's April industrial production data and the U.S. April retail sales on May 13, the EU-17's preliminary Q1 GDP on May 14, the U.S. April industrial production and Japan's preliminary Q1 GDP on May 15 as well as the ECB President's speech on May 16.