Gold Surged When Bonds and Stocks Risks Increased

By Sharps Pixley Ltd

The U.S. Comex gold futures surged 2.36 percent in the past two days to end at $1,411.50 on Thursday. During Asian Friday morning, the prices jumped another 0.40 percent to $1,417. In contrast, the Dollar Index has had a setback, dropping 1.26 percent on Wednesday and Thursday to finish at 83.042. The S&P 500 index and the Euro Stoxx 50 index rebounded 0.37 percent and 0.45 percent respectively on Thursday after falling the day before. The Nikkei 225 index entered into a correction on Thursday when it dropped 5.15 percent. The market plunged after the 10-year JGB yield reached 0.933 percent from 0.609 percent at the end of April.

Did the Market Read the Fed Wrongly?
The recent data from the U.S. have given hope to the market that the Fed would not slow down its bond purchases anytime soon. The U.S. real GDP grew at 2.4 percent in Q1 versus an expected 2.5 percent while the jobless claims rose to 354,000 versus the forecast of 340,000. The April pending home sales rose only 0.3 percent versus the survey of 1.5 percent. The economy does not appear to be improving on a sustainable basis, and the Fed will likely maintain its debt purchases. In Japan, the industrial production surged 1.7 percent in April although the CPI fell again. The better growth data helped the stock market to rebound on Friday.

Asian Love for Gold
In its press release on Thursday, the World Gold Council highlighted the divergence in behaviour between the buyers of gold bars, coins and jewellery and the buyers of the ETF products. The WGC survey found that 82% of the buyers in India and China see a stable or higher gold price in the next 5 years. Gold demand in Asia will also reach a record high in Q2 2013 according to the WGC.

What to Watch
We will watch Ben Bernanke's speech on 2 June, Janet Yellen's speech and the May final PMI index for China, the E17 and the U.S. on 3 June, the 10-year JGB auction on 4 June, the U.S. Fed Beige Book and the U.S. May ADP private payrolls on 5 June, the monetary policy announcement of the BoE and the ECB on 6 June as well as the April Germany industrial production data and the May U.S. non-farm payrolls and unemployment rate on 7 June.

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