Are we back to risk off?

February 28, 2014 08:24 AM

Comex gold futures rose 0.62% this week to end at $1,331.20 on Thursday. After rising 3% last month, gold futures will likely be up 7% in February. The Dollar Index is practically unchanged this week while it has risen 0.31% this year. The S&P 500 Index retraced all its losses this year and reached an all-time high of 1854.29 on Thursday. It climbed 1.02% this week while the Euro Stoxx 50 Index was up 0.1%. The U.S. 10-year government bond yield rallied almost 10bp to 2.6405% week-to-Thursday as a slower U.S. growth and political turmoil in Ukraine add to the safe haven demand of Treasuries.

The Yellen Boost

Gold futures(COMEX:GCJ14) rebounded from a 1.09% plunge on Wednesday after the Fed Chairman Yellen mentioned on Thursday that they would continue to taper in “measured steps” and need to decipher how much of the recent weak data is due to bad weather and how much is due to a weaker outlook. The softer tone and the apparent readiness of the Fed to slow the pace of tapering have boosted both the gold prices and stocks. While the January U.S. durable goods ex-transportation rose 1.1%, the weekly initial jobless claims jumped 12,000 to 348,000 compared to an expected 335,000. In Europe, the ECB said that they are committed to counter deflation because falling prices make structural adjustments for the countries even harder. 

Safe haven demand for gold

After a group of gunmen have seized the local government buildings and later the airport in Crimea in Southern Ukraine and the Russians are getting ready for war games near the border of Ukraine, safe havens such as Treasuries, gold, yen as well as Swiss franc(CME:SF) have all been rising. Concerns on China’s property developers’ financing and shadow banking also add to the emerging market currencies rut, boosting the demand for safe havens. On the other hand, the gold premium in Shanghai fell to $3.60 below the London spot on Tuesday, indicating that the Chinese may view the prices being too high currently. 

What to Watch We will monitor the U.S. January core PCE price index, the final February China HSBC manufacturing PMI, and the February flash PMI of the E18 on 3 March, the start of the Chinese NPC Meeting on 5 March, the monetary decisions and announcements of the Bank of England and the ECB on 6 March as well as the February U.S. non-farm payrolls and the unemployment rate on 7 March.


About the Author

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.