Gold's ready, steady, go

June 3, 2015 09:55 AM

After rising 0.59% in May, the U.S. Comex gold futures climbed a further 0.42% this week to $1,194.40 while the Dollar Index tumbled 1.11% to 95.835 as the Eurodollar rallied 2.05% on Tuesday. The S&P 500 Index rose 0.12% while the Euro Stoxx 50 Index fell 0.22% this week. With liquidity drying up towards the summer, global bond yields have risen to the highest level this year. The U.S. ten-year government bond yield rose 13bp to 2.262%, the German ten-year Bund yield jumped 23bp to 0.712%, and the Italian ten-year government bond yield surged 28bp to 2.122% in the past two days.

Europe in the News and Inflation Data
With the market waiting for the ECB monetary policy decision on 3 June, the ECB cheered that the inflation rate in the Euro Area rose 0.3% in May, the first positive increase in six months. The core inflation rose 0.9% in May, beating the expectation of 0.7%. The rising long-term yields in the Euro zone also signal that growth and inflation are improving, a consequence of the quantitative easing. As the first repayment to the IMF will be due on June 5 by the cash-strapped Greece, Germany, the IMF, and the ECB will hammer out another proposal with Greece on Wednesday when Tsipras arrives at Brussels for talks. The U.S. April core PCE index rose 1.2% year-on-year while the regular CPI rose 1.8%. Bloomberg reported that this gap is the largest in six years. With inflation not gaining any momentum, it is not certain that the Fed will raise rates in September.

Negative Gold ETP Flows This Year but Rising Central Bank Purchases
Gold-backed ETP holdings officially fell four tons year-to-date as of 2 June as the holdings have tumbled from February’s peak of 1,679.80 tons to 1,594.08 tons, reaching the lowest level since March 2009. Bloomberg has declared that gold is out of favour as global equities reach records and the market expects the U.S. to hike rates later this year. On the other hand, Russia and Kazakhstan have continued to add gold while the global central banks have purchased gold for 17 consecutive quarters as of Q1 2015.

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