Comex gold (COMEX:GCJ14) futures stabilized on Tuesday at $1,311.40 after falling 1.86% on Monday and dropping 3.12% last week. The CRB Commodities Index also rebounded 0.48% this week while the U.S. Dollar Index (NYBOT:DXM13) has dropped 0.20% to 79.944 on Tuesday. Both the S&P 500 (CME:ESM14) and the Euro Stoxx 50 Indices initially dropped on Monday but recuperated almost all their losses on Tuesday. The U.S. 10-year government bond yield fell 2 basis points to 2.7490% from the recent peak reached last Wednesday after the FOMC meeting. 

Weaker Global Manufacturing Health in March
The March flash PMI for China dropped for the fifth month and was lower than expected at 48.1. Rather than using fiscal policy to stimulate growth, the Finance Minister said China would focus on the quality of growth and the environment. While the market is worried about a debt crisis in China, Morgan Stanley believes that the consumption and services sectors in China are larger than actually thought and would weather a slowdown in productivity growth. On the other hand, the Eurozone March flash PMI was in line with estimates while that of the U.S. declined from 57.1 in February to 55.5. The U.S. February New Home Sales also slowed from 468,000 in January to 440,000. 

Aggressive Gold Short-Covering
According to the CFTC, the managed gold net long combined positions have risen 12.54% to 138,429 contracts during the week of 18 March, led by a 35.89% reduction in the net combined short positions. The sharp rise in the net long gold positions and especially the recent quick reduction in the short positions could weaken the gold’s technical position and lead to gold price vulnerability. Nevertheless, gold’s role as a hedge against emerging markets volatility has recently been highlighted by the World Gold Council (WGC), especially against currency risks, tail risks as well as global financial and contagion risks arising from developing market crises. The WGC also concludes that an individual should hold between 2% to 10% of gold in their portfolios, depending on their risk appetites.