The U.S. Comex gold futures (COMEX:GCZ13) rebounded 1.19% in the past two days to end at $1,286.30 on Thursday while the Dollar Index (NYBOT:DXZ13) declined 0.21% to 81.023 at the end of Thursday. Week-to-date, the gold futures returned 0.13% compared to 1.19% in the S&P 500 Index (CME:SPZ13), 1.45% in the Euro Stoxx 50 Index, and 4.60% in the Nikkei Index. The U.S. 10-year government bond yield declined 6bp this week to 2.69% on Thursday.
Yellen's Testimony and Euro Area's Fragile Recovery
The gold and stock markets cheered on the words of Janet Yellen, the Fed chairman nominee. In her testimony on Wednesday, she said that the Fed should not withdraw the stimulus too soon in the face of a fragile recovery and the already zero-bound interest rates, signaling her continuity with Bernanke's policy. The Fed Funds rate will remain low even after the bond purchases have been pared back. Europe's recovery has stalled as the real GDP rose 0.1% in Q3 compared to 0.3% in Q2. France and Italy GDP both shrank 0.1%. These suggest that the ECB will continue to be very accommodative. The third plenary session in China seemed to have disappointed the market as details are missing from the reform initiatives. Nevertheless, the reform architecture is probably the most comprehensive and ambitious in the history of the PRC according to Credit Suisse. In particular, the government will allow the market to play a more "decisive role" in resource allocation.
Q3 Gold Demand
The latest World Gold Council report shows that the consumer demand in jewelry, bar and coin has risen 26% year-on-year in the first three quarters of 2013. The strength in the consumer demand was more than offset by the ETF divestment and the Indian gold demand clampdown by the government. Barclays pointed out that the market surplus is at its widest since 2005 prompted by the falling demand. The key factors to watch will remain the Chinese demand, the Indian demand, and the investment flows.
What to Watch
Next week, we will watch Bernanke's speech, the U.K. MPC decisions, the October FOMC minutes release as well as the US October CPI, retail sales and existing home sales on Nov. 20. We will also monitor the Bank of Japan interest rate decision, Draghi's speech, and the E17 November flash PMI on Nov. 21 as well as the Germany November IFO business climate index on Nov. 22.