The U.S. Comex gold futures surged 1% on Monday and ended at $1,096.20 on Tuesday after dropping four percent last week. The Dollar Index has fallen a further 0.5% this week after declining 0.63% last week. The S&P 500 Index rose 0.65% and the Euro Stoxx 50 Index dropped 1.27% this week. Month-to-date, the S&P has risen 1.56% while the Euro Stoxx has jumped 3.87%. In contrast, the gold futures dropped 6.45% and the CRB Commodity Index dropped ten percent this month. The U.S. ten-year Treasury bond yield dropped 1bp this week to 2.25% on Tuesday while the ten-year German Bund yield was unchanged for the week at 0.688%.
U.S. and China Confidence
A couple of recent U.S. data came out weaker than expected. The July Conference Board consumer confidence index dropped to 90.9 from 99.8 in June versus an expectation of 100. The consumer expectations for the next six months were the lowest since February 2014. The May Case-Shiller house price index rose 4.94% year-on-year compared to 5.6% expected. Investors were also concerned about the fall of the Chinese stock markets, which rose 51% this year until it peaked on June 12 and then fell 28% afterwards. While the Chinese state funds are propping up the stock markets, the individual investors, which make up 80% of the trading volume, are leaving the market.
Nevertheless, the Westpac-Market News International Consumer sentiment survey for China was 114.5 in July, two points higher than in June. In fact, only 8.8% of total Chinese households invest in the stock market, and the share of stocks in total assets is below ten percent. Markets are concerned that volatility is rising in both China and the United States, when the Fed has indicated it will likely raise rates this year.
Trading on Technicals
While the gold futures have bounced off of the recent low of $1,072.30, many traders are expecting that gold would trade below $1,000 before rising again. The CFTC reported that the managed money net combined gold positions have become net short of 11,345 contracts during the week of July 21 as the short positions soared to a historical high of 121,238 contracts. China’s demand for physical gold dropped to the weakest level since 2009 as of Q2 2015 according to the GFMS, adding to the negative sentiment. Gold prices have been hurt from many fronts and will continue to be driven more by technicals rather than fundamentals.