By Sharps Pixley Ltd
Wed 20 Jun 2012 03:57:31 CT
After climbing 2.3% last week, gold futures traded down by 0.3% this
week as of Tuesday. The initial market rally fizzled out quickly
despite the fact that the Greek re-elections produced a pro-bailout and
pro-Euro outcome, as investors turned their attention to the rising
borrowing costs in Spain and Italy. The Spanish banking woes caused the
10-year Spanish Government Bond yield to rise 28bp to 7.16%, the
Euro/Dollar to fall 0.5%, and the Stoxx to drop 1.17% on Monday. The
yield on the 1-year Spanish T-bill yield surged to 5.074% at the Tuesday
auction, a rise of 210 bp since the last auction on 14 May.
Risky assets rallied on Tuesday after the European leaders at the G-20
Summit have indicated that they could relax the bailout terms for
Greece, and would continue to focus on resolving the European banking
problems to lower borrowing costs. The market is also expecting that
the U.S. Fed may announce more easing measures at the end of the FOMC
meeting on Wednesday, due to softer U.S. economic growth, a low
inflation rate at below 2%, and the European crisis dampening the U.S.
Gold futures may have somewhat priced in further quantitative easing by
the Fed, as prices have increased for 6 consecutive days since 8 June.
The more co-operative tone from the European leaders, and the rally in
Spanish bonds on Tuesday may have also caused the safe-haven bids for
gold to retreat, according to Bloomberg.
In India, gold futures reached a historic high at 30,311 Rupees per 10
grams on Monday as the Rupee continued to stay weak while the gold
prices have recovered. Rising prices have dampened gold demand. About
60% to 70% of gold sales come from rural India. A delayed and smaller
than normal monsoon would mean a poorer harvest which could hit Indian
gold demand further, resulting in an expected total gold imports of 650
tonnes compared to 969 tonnes in 2011. So far in June, rain deficit has
The falling volatility of gold since last Thursday may signal that gold
traders are more cautious in front of the FOMC meeting, and are more
prepared for disappointment. For now, gold price direction is
overwhelmingly dictated by central banks' monetary policy decisions, and
the tensions in Europe.
Sharps Pixley, Londonwww.sharpspixley.com
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