Gold’s new factor: European QE?

The U.S. Comex gold (COMEX:GCM14) futures rebounded from a recent trough of $1,268.40 on April 24 to end at $1,290.60 on Thursday, down 0.26% for the week. During Friday Asia morning, the gold futures rose a further 0.12%. The U.S Dollar Index (NYBOT:DXM14) ended below 79.80 on Thursday and was flat for the week. The S&P 500 Index (CME:SPM14) was up 0.75% for the week after rising 0.74% the week earlier while the Euro Stoxx 50 Index was up 1.10% after climbing 1.08% last week. The U.S. 10-year government bond yield rallied 4bp to 2.68% this week.

Gold Finding Temporary Support
With Russia stepping up its military exercises on the Ukrainian-Russian border, the U.S. is preparing for further sanctions on Russia which could include strategic companies such as Gazprom and the Russian banks. Gold rebounded from the $1,268 level on Thursday as the Ukrainian crisis escalated while the volume in the Shanghai Gold Exchange reached a two-month high on Wednesday.

European Cenral Bank debating on QE and global growth outlook
With the European inflation rate running at 0.5% in March, much below the two percent target, the Eurozone Q4 GDP growth at only 0.2% annualized, and the Euro/Dollar up almost seven percent in the last year, the ECB is considering directly buying long-term securities which are backed by mortgages and auto loans, bank debt, corporate debt, and government bonds in the 18 countries. While the Euro may decline against the dollar, a step-up in actual inflation could lead to more demand for gold, which is a store of value. The March U.S. new home sales and the April flash manufacturing PMI were worse than expected although April’s PMI at 55.4 was only 0.1 point lower than that in March. The Eurozone April flash manufacturing PMI was higher than expected at 53.3 while Germany’s April IFO Business Climate Index jumped to 111.2 from 110.7 in March.

What to Watch
We will monitor the UK Q1 preliminary GDP, the U.S. February 20-city housing prices level, and Japan’s March industrial production on April 29, the U.S. FOMC meeting and the U.S. preliminary Q1 GDP on April 30, Fed Chairman Yellen’s speech, China’s April NBS manufacturing PMI Index, the U.S. March Core PCE Price index, and the U.S. April ISM manufacturing index on May 1 as well as the Eurozone April manufacturing PMI, the Eurozone March unemployment rate, and the April U.S. non-farm payrolls and unemployment rate on May 2.

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