Gold near-term swing: It's all about the dollar

The U.S. Comex gold futures (COMEX:GCK14) declined 0.48% to $1,284.60 on Thursday after rebounding 0.84% on Wednesday from a five-day decline. While the gold futures have declined 0.71% week-to-Thursday, the S&P 500 Index (CME:SPM14) and the Euro Stoxx 50 Index climbed 1.71% and 1.13% respectively. The Dollar Index (NYBOT:DXH14)has jumped 0.37% this week to 80.475 on Thursday while the U.S. 10-year government bond yield has spiked almost 8bp to 2.7972% in the same period.

U.S. Weather Effect Waning
As the U.S. March manufacturing ISM has grown faster than expected, the March services ISM has also jumped to 53.1 from 51.6 in February, indicating that the hiring activity is returning to normal after the bad weather conditions have passed. Even though the ECB maintained its benchmark interest rate on Thursday, the governor has opened the door for further monetary stimulus and the use of unconventional tools to prevent deflation.

The March inflation rate in the Eurozone reached a four-year low at 0.5% year-on-year. The Euro/Dollar declined 0.34% on the ECB news as the Dollar strengthened and the gold prices fell on Thursday. The improvement in economic data in the U.S. will lend support to the Fed stepping on the gas pedal to taper. The market is clearly focusing on Friday’s U.S. payroll report for further signs of economic recovery. 

Investors’ Positioning
In early April, the gold-backed ETP holdings dropped about seven metric tons as the sentiment of gold has turned subdued. The latest weekly CFTC data have shown that the net total managed gold position has declined 13.28%, led by an almost 10% drop in the long position and a 27% rise in the short position. 

What to Watch
We will monitor Germany’s February industrial production and the ECB annual bulletin on April 7, the Minneapolis Fed Governor’s speech on 8 April, the March FOMC minutes on 9 April, the Bank of England interest rate and asset purchase decisions, China’s March trade data and March M2 growth on April 10 as well as China’s March inflation data on April 11.


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