Gold covers rally

May 13, 2015 11:46 AM

The U.S. Comex gold futures climbed 0.29% to $1,192.40 in the past two days while the S&P 500 Index dropped 0.78% and the Euro Stoxx 50 Index fell 1.76%. The dollar index also retreated 0.27% to 94.534 on Tuesday. Month-to-date, the U.S. ten-year Treasury bond yield has jumped 22bp to 2.2489% while the German ten-year Bund yield widened 31bp to 0.675%. According to Bloomberg, about $2 trillion worth of bonds in Europe still have negative yields.

Jobs Data and Oil Prices

The U.S. added 223,000 private payrolls in April compared to 85,000 in March. The number of people hired in the U.S. in March climbed 60,000 to 5.07 million while the quits rate improved to two percent, similar to the level in early 2008, indicating the employees are more confident to leave their current jobs. The crude oil futures climbed beyond $61 on Tuesday, rising close to 50% since mid-March. Improving job data and the rising oil prices may point to higher inflation, leading to firmer gold prices recently.

Investors Positioning

The managed money net combined gold positions declined 48% for the week and approached the low level reached in December 2013 at 31,661 contracts as of May 5, led by a 15% decline in the long positions and a 17% jump in the short positions. This may lend support to the gold prices in the short-term as short-covering increases. However, according to Barclays, physical demand from Asia has been softer while the gold-backed ETP holdings saw the largest monthly decline in May by almost ten tons since May 2014. The path of the eventual interest rate hike by the Fed will have a strong impact on the gold prices in the second half of the year, counterbalanced by more QE by the central banks, rising oil prices, and rising geopolitical and default risks.

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