Gold holds its own

June 10, 2015 10:55 AM

The U.S. Comex gold futures rebounded 0.81% to $1,176.30 on Tuesday after falling 1.79% last week. The dollar index fell 1.18% to 95.166 this week after falling 0.62% last week. The S&P 500 Index declined 0.59% in the past two days and was up 1.96% this year while the Euro Stoxx 50 Index was down 1.42% in the past two days and surged 12.61% year-to-date. The crude oil futures reclaimed $60 as the U.S. inventory is dropping. The U.S. ten-year government bond yield climbed 3bp this week to 2.438% while the German ten-year Bund yield jumped another 9bp to 0.947% on Tuesday.

US, Greece, and China
With the U.S. non-farm payrolls rising 280,000 in May versus 226,000 expected, a September interest rate hike is looking a bit more likely. Still, the underemployment rate is at 10.80%. The May U.S. retail sales on June 11 will be closely watched to confirm a rebound in the economy. Tsipras will meet with Merkel and Hollande on Wednesday to discuss the aid deal, but Greece still does not have a budget plan that satisfies the creditors yet it is asking for 6.7 billion Euros from the European Stability Mechanism to repay the ECB. In China, the May PPI fell 4.6% year-on-year while the CPI declined from 1.5% year-on-year in April to 1.2% in May. This reflects weak domestic demand and overcapacity, which will call for more monetary easing.

Physical Demand Looks Soft
In India, the demand for gold has slowed in line with seasonality with gold imports dropping from 87 tons in April to 65 tons in May. In China, the rolling monthly average trading volume on the Shanghai Gold Exchange has fallen to the lowest level since the beginning of the year despite falling local gold prices as money is sucked into the raging stock market. With the stocks in the U.S. and Europe languishing and the developed market bond yield rising, gold remains a safe haven should Greek stumble and end up defaulting.

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