Gold Has Fallen Due To:
- Gold’s recent weakness is in large part due to a period of recent dollar strength. While gold in dollar terms has fallen by 25% ($1,920 to $1,540), gold in euro terms is only down by 14% (from €1,374/oz to €1,210/oz).
- Oil weakness – since the end of February, oil has fallen from $111 a barrel to below $95 a barrel (NYMEX) today. Gold and oil are often correlated and many buy gold to hedge inflation that comes from higher oil prices.
- Gold’s weakness may also have been due to wholesale liquidation in all risk markets due another bout of "risk off" which has seen global equities and commodities all come under pressure.
- Physical demand from retail investors in the western world has slowed down as did demand from India in recent weeks due to the increase in taxes on bullion (since removed).
- Much of the selling has been technical in nature – whereby more speculative elements on the COMEX who trade gold on a proprietary basis have been selling gold due to the recent price weakness and the short term trend clearly being down. This has led to speculative longs now having their smallest positions since December 2008.
At the beginning of the week, European equities are seen modestly higher in the major indices with underperformance noted in the peripheral markets. Markets have sought some solace in the G8 summit over the weekend, with leaders agreeing that the optimal scenario would be Greece remaining within the European Monetary Union, and have furtively agreed that further measures may be necessary to return Europe to growth. The disagreements, however, continue to rollover as leaders fail to commit to a specific growth strategy. The tentative risk sentiment is reflected in the fixed income markets, with the German Bund remaining in negative territory for much of the session and 10yr government bond yield spread between the periphery and the German benchmark tighter on the session. Touted bids by domestic accounts helped support BTPs (Italian paper), especially in the short end of the curve, where the spread between the German equivalent is trading tighter by around 3bps. From Tokyo, comments from Fed’s Lockhart have drawn attention, who commented that with the downside risks emerging from the Eurozone, it would be unwise to take QE3 off the table.
With a lack of European data, markets have remained focused on the macroeconomic issues throughout the morning. European equities have seen mixed trade this morning, starting off sharply lower following Moody’s downgrade of 16 Spanish banks late last night. Equities have been observed on a relatively upwards trend as market talk of asset reallocation into stocks from fixed-income has somewhat buoyed sentiment, however this remains unconfirmed. The news that Spanish banks are pressing regulators to reinstate a short-selling ban on domestic banking stocks has also helped keep negative sentiment towards Spanish financials at bay, with Bankia dramatically reversing recent trends and seen higher by around 25% at the midpoint of the session...The chief of the Australia and New Zealand Banking Group has said volatile conditions in global markets have caused the wholesale funding market for Australian banks to freeze, a further sign that the European turmoil is taking its toll on global markets.
European cash equities are in the red across the board at the midway point, as the bourses fail to reverse the trend of the past few sessions. With data points very light today, participants continue to focus on the macroeconomic themes as speculation regarding a Greek exit maintains focus. A medium-term maturity Spanish bond auction slightly eased fears, selling to the top of the indicative range, however the appearance of solid demand was countered somewhat by limited supply and sharply higher yields across all three lines. Following the auction results, EUR/USD saw some modest support and the Bund exhibited slight weakness, but this was short-lived as the macroeconomic concerns took over once more. Unexpectedly, the 3-month Euribor rate fixing came in with its first increase since December last year, prompting some selling pressure on the Euribor strip. This move was retraced as it was rumoured that one bank had not submitted a rate due to the Ascension Day market holiday across certain European markets, prompting the incline.
European equities are seen lower across the board with the exception of the CAC-40 index as markets remain nervous towards the prospect of a second wave of Greek general elections. The outperformance of the CAC-40 follows the news from oil major Total, who have stemmed the gas leak from their Elgin well successfully after conducting intervention. As such, Total are seen higher by over 2%, strongly above the Oil & Gas sector. The Bank of England have released their latest projections for the UK economy, revising lower their growth forecasts and higher their near-term inflation expectations, alongside analyst forecasts. The BoE have stuck to their long-term predictions that there will be a slow but steady return to recovery, but reiterated that major downside risks exist from Europe. Governor King’s subsequent press conference has shown him to remain somewhat dovish, commenting that an increase in downside risks would prompt the bank to commit to further actions, leaving the door to a boost in asset purchases open. The forecast revisions prompted a sharp move lower in GBP/USD, falling around 75 pips and Gilt futures moving 55 ticks to the upside after the opening comments. At the midpoint of the session, GBP/USD remains in negative territory despite seeing support before the inflation report after better than expected UK jobless claims data.
European bourses are trading in modest positive territory ahead of the US open with early trade seeing moves higher across equities as Germany printed an expectation-beating 0.5% growth in their flash Q1 GDP. Elsewhere, Eurozone growth surprised to the upside somewhat, coming in flat against the expected contraction of 0.2%. However, as time passed, Greece garnered the focus of markets once more as they face a EUR 435mln foreign-law bond redemption today. Government source comments have somewhat reassured markets that the payment will be made, but participants await official confirmation. Further assisting the moves off the highs was a lower-than expected ZEW survey from Germany, with economists noting that the French and German elections have knocked confidence in the country over the past month.
Gold hit a 4 month low today despite deepening worries that the political upheaval in Greece may sink the country into chaos and endanger the euro zone's efforts to end the debt crisis – possibly leading to contagion and or a monetary crisis. Some decent demand from South East Asia has been reported at the $1,600/oz level and there are also reports from Reuters of a “semi-official buyer of gold” emerging “on dip below $1,600/oz”. Gold’s weakness yesterday may have been again due to dollar strength and oil weakness - oil is now below $97 a barrel (NYMEX). It may also have been due to wholesale liquidation which created a new bout of "risk off" which has seen global equities and commodities all come under pressure. However, gold’s weakness yesterday was also contributed to by more unusual trading activity. As trading in New York got underway, there was an unusually large bout of selling with some 6,000 gold futures contracts sold in minutes and this led to gold's initial $10 fall to the $1,615/oz level. Momentum driven algorithm trading may have then led to follow through selling and the initial sell off may have emboldened tech traders to sell more leading to the falls below $1,600/oz.
European equities continue the trend of the week as they move lower throughout the morning session, as no news is bad news from Greece. In the early hours of the session, reports from German press revealed that the Troika have cancelled their May mission to the country, on the grounds that the current political instability could derail the rescue effort. The continued risk-aversion in Europe is evident in the strong demand for both German and British securities, as both countries sell strongly in their respective auctions. As such, the German Bund contract has hit on all time highs several times in the session today and the Spanish yield on their 10-yr government bond remains elevated above the 6.00% mark. Overnight source comments speculated that the Spanish government are pressing their national banks to set aside between EUR 20-40bln in funds for bad loan provisions and capital buffers. The reports have weighed down on the IBEX 35 throughout the morning, which is currently severely underperforming its European counterparts.
European equity markets are seen trading in negative territory across the board at the midway point as the lack of a Greek governing coalition continues to weigh on sentiment. As such, an earlier Greek T-Bill auction passed by with an unsurprising increase in borrowing costs for the country. The concern over sovereign debt is clear elsewhere, as the spread between peripheral 10-year government bond yields remain wider against the German Bund. Very strong German Industrial Production data has failed to provide relief for the DAX index as concerns on the periphery outweigh the strength in the core. The monthly reading for March beat expectations, coming in at 2.8% against estimates of 0.8%. Overnight reports from the Spanish press concerning a government intervention in the lender Bankia have been denied by the Spanish Ministry, commenting that the aim for the company is a cleanup and restructuring, not a seizure. EU’s Almunia has commented on the developments, saying that it seems likely the bank will receive state aid.
European equities are trading higher at the midway point, with modest risk appetite observed ahead of the ECB rate decision and subsequent press conference. A large volume of corporate earnings has helped European stocks from the open, with the large cap names such as SocGen and BMW posting a strong set of results. A smooth set of auctions from both Spain and France have helped tighten the European government 10-yr bond yield spreads against Germany. The French results saw a reduction in borrowing costs and solid demand across all lines, with the Spanish auction selling to the top of the indicative range, albeit with an increase in yields. Elsewhere, Services PMI data from the UK has disappointed to the downside, however the figure still indicates growth in the services sector with the figure coming in at 53.3. A breakdown in the data has shown that clients do remain cautious, but optimism is on an upward trend. Looking ahead in the session, market focus will be on Barcelona as ECB’s Draghi prepares for his press conference at 1330BST/0730CDT.
In the early hours of the European session, continental markets opened higher, reacting to yesterday’s positive performance in the US. Sentiment quickly turned as continental Europe released its respective Manufacturing PMI figures, with even the core European nations recording declines in the sector and lower-than-expected readings. Despite the poor data, some major cash markets are clinging on to positive territory, as the CAC and DAX indices both trade higher. The Spanish and Italian markets, however, tell a different story. With both their respective PMIs recording significant declines, both now trade lower by around 2% apiece. Against the flow of bad Eurozone news, the UK has released an expectation-beating Construction PMI figure, going somewhat against last week’s breakdown of the official GDP statistics. Markit research cites strength in commercial work and new orders as the main driver for the growth. The downbeat data from Europe has taken its toll on EUR/USD, currently trading lower by over 90 pips, but the pair has come off the lows in recent trade. GBP/USD has mirrored the moves in the EUR and trades lower by over 40 pips, however some support has been gained from the strong Construction PMI.
With a Labour Day market holiday across the continent, focus turns to the FTSE-100. The UK market is trading modestly higher with some strong earnings reports overnight lifting the index. Lloyds Group posted stronger than expected profits and reported confidence in the delivery of their financial guidance. The report has boosted Lloyds shares to become one of the top gainers of the day. Despite this, the financials sector is being held back from outperforming as Man Group fail to deliver on their sales figures, pushing their shares lower throughout the session. The only notable data release of the European session was UK Manufacturing PMI, coming in below expectations with a reading of 50.5 as manufacturing output was dampened across April by Eurozone weakness and contracting new orders. Following the release, GBP weakness was observed, with GBP/USD touching upon session lows. Pre-market, the RBA cut their cash target rate by 50BPS, a larger cut than expected. The board cited skittish market conditions and below trend output growth as the triggers for the rate cut. As such, AUD weakness is observed across the board and AUD/USD stops just short of breaking through 1.0300 to the downside. Looking ahead in the session, participants look toward US ISM Manufacturing for March due at 1500BST/0900CDT as the next key data release.
All major European bourses are trading lower with the exception of the DAX, which holds just above the open by a modest margin. Adidas ranks among the top performers in the German index, following the report of a strong set of sales figures, contributing to the positive trade. Spanish concerns continue to build up as Standard & Poor’s took ratings action on 16 of the country’s banks, downgrading the notable names of Banco Santander and BBVA. Although the move was not a surprise as this is the usual procedure following a sovereign downgrade, both Santander and BBVA, along with the IBEX are in negative territory. The Bund is seen higher amid a generally risk-off theme to markets this morning. Volumes have been relatively light, however a slight pick-up has been observed in recent trade, grinding the security upwards in the last hour or so. EUR/USD continues to experience weakness and now trades close to a touted option expiry of 1.3200, as traders seek the safety of the USD across a number of currency crosses.
Trading in Goldman Sachs Group Inc.’s gold ETF in India surged almost 11 fold, leading an advance in gold securities, as investors bought gold to mark the auspicious Hindu festival of Akshaya Tritiya. Volumes in GS Gold BeEs, India’s biggest exchange-traded fund backed by gold, was 937,816 units on the National Stock Exchange of India Ltd. at 4:54 p.m. in Mumbai, up from 85,376 units yesterday and more than the 101,914 average daily volumes in the last six months through yesterday, according to data compiled by Bloomberg. This is significant volume. Each unit represents about 1 gram of physical gold and therefore 937,816 units is the equivalent of some 29,170 ounces of gold which at today’s prices is some $47 million of daily volume for just one gold ETF in India. The Goldman Sachs India gold ETF is just one of many new ETFs in India. Trading in Kotak Gold ETF jumped more than eightfold to 226,032 units. Gold demand in India, the world’s biggest importer, may climb as much as 25% to 15 metric tons on Akshaya this year, according to Rajesh Exports Ltd., the country’s biggest gold-jewelry exporter. Assets held by local gold funds reached a record 98.9 billion rupees ($1.87 billion) at the end of March, according to the Association of Mutual Funds in India. GS Gold BeEs had assets worth 29.6 billion rupees (some $563 million (USD)) as of March 31, data from the association showed. Trading in UTI-Gold Exchange Traded Fund climbed more than fivefold, while volumes in Reliance Gold ETF, the second-biggest fund, was up more than sixfold, data shows.
It appears that when it comes to mocking consensus groupthink emanating from lazy career 'financiers' who seek protection from their lack of imagination and original thought, 'creation' of negative alpha and general underperformance (not to mention reliance on rating agencies, only to jump at the first opportunity to demonize the clueless raters), in the sheer herds of other D-grade asset "managers" (for much more read Jeremy Grantham explaining this and much more here), David Rosenberg enjoys even more linguistic flexibility than even us. Case in point, his just released trashing of the latest Barron's permabull groupthink effort titled "Outlook: Mostly Sunny." And just as it so often happens, no sooner did those words hit the cover of that particular rag, that it started raining, generously providing material for the latest "Roasting with Rosie."