Range-bound gold market looks to Fed for guidance next week

The U.S. Comex gold futures jumped 1.09% on Tuesday, but tumbled back down the next day, ending at $1,377.80 on Thursday. During Asia's Friday morning, the gold futures traded higher at around $1,385. The Dollar Index has fallen 1.12% week-to-Thursday as the Japanese Yen has surged 2.30% and the euro has risen about 1% versus the dollar. The Euro Stoxx 50 index dropped for four consecutive days by 2.29 percent. The S&P 500 index rebounded 1.48% on Thursday although it has fallen 0.43% this week. Since the peak in early May, the U.S. high yield bond prices have fallen about 3% while the emerging market bond prices have dropped even more by 6 percent.

Slowing Growth Outside of the U.S.

The growth in the U.S. is holding up better than that in the rest of the world, and its stock market is outperforming this month. The latest U.S. weekly jobless claims dropped 12,000 to 334,000 while the May advance retail sales rose 0.6% compared to the expected 0.4%. The World Bank lowered this year's world GDP growth forecast from 2.4% in January to 2.2%. In particular, it reduced its growth expectations in China and Brazil, expected the Euro economies to contract 0.6%, and revised up the growth in the U.S. and Japan. As the market increasingly expects the Fed to reduce its bond purchases, bond yields, especially in the emerging countries, have backed up, sending investors' money out of global bonds.

Investors Feeling Bearish Again

Based on the Bloomberg survey, the number of bearish gold traders has increased the most since a month ago. The gold-backed ETP holdings fell to a two-year low of 2,117.96 metric tons on Thursday. The Chinese may lend support to the physical gold market after their three-day holiday. Import demand in India has dropped significantly in June after the government raised the import duty from 6% to 8%on June 5 and imposed further shipments restrictions. Gold prices will be under further pressure if investors continue to flee from the gold-backed ETPs without a big enough offset by the physical demand.

What to Watch

Next week, the important events to watch will include the U.S. May CPI and housing starts on June 18, the U.S. FOMC rate decision and the Fed's press conference on June 19, the Eurogroup meeting on June 20 as well as the June "flash" PMI index for China, the E17 and the U.S. on the same day.

About the Author
Austin Kiddle

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

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