The US dollar continued to lose ground this week, contributing to a
firmer trend for precious metals. Gold rose over $40 to $1223, and silver by
$1.13 to $17.45, though prices initially opened a little lower in early
European trading this morning, perhaps anticipating some pre-weekend
profit-taking.
Gold has now risen over 3% on the year, marginally beating the S&P 500
Index, which is up 2.5%, but far better than bonds, the US 10-year Treasury
price being down about 4%.
On the Comex futures market there appears to be increasing demand for gold
and silver, with both volumes and open interest rising with the price. The
next chart is gold.
If the rise was fueled by bear closing, open interest would tend to
contract. While there is almost certainly bear closing involved, it is clear
that new buying is the dominant feature. Similarly, open interest in silver
has recovered towards the record levels seen last month. This is illustrated
in the next chart.
There has been significant volatility in bond markets this week, with
yields along the curve steepening, and the difference between two and ten
year Treasury yields increasing from 1.2% to 1.6% since early February. A
widenining differential (known as a steeper yield curve) is normally
associated with bond markets discounting higher rates of inflation, or
increased financial uncertainty, or both. So if the yield curve continues to
steepen, the dollar is likely to weaken further so long as the Fed is
reluctant to raise interest rates. I expect this topic to receive growing
attention in the coming months.
Gold has fared less well priced in sterling and euros, which have also
risen against the US dollar, but it is still up by 1.5% and 9% respectively
on the year. The attraction to Eurozone residents was recorded in this week's
release from the World Gold Council's Gold Demand Trends for the first
quarter of 2015, which showed a 20% increase in gold bar and coin demand from
German citizens.
There are two obvious reasons for Eurozone citizens to buy gold.The first
is the prevelance of negative short-term interest rates coupled with the
banks' reluctance to pay out large amounts of physical cash, making gold an
attractive alternative. The second reason is the continuing tragedy that is
Greece.
Meanwhile, in Greece ordinary people are reported to be buying motor cars in
order to dispose of bank deposits, with German manufacturers presumably
benefiting most. The thinking must be that a mobile asset is a good thing to
own at a time of financial crisis instead of bank deposits, confirming they
have lost all faith in the banking system.
Next week
Monday
Japan: Capacity Utilisation, Industrial Production. US: NAHB Builders
Survey.
Tuesday
UK: CPI, Input Prices, ONS House Prices, Output Prices. Eurozone: HICP,
Trade Balance, ZEW (Economic Sentiment). US: Building Permits, Housing
Starts. Japan: GDP.
Wednesday
Japan: Leading Indicator (Final). UK: BoE MPC Minutes.
Thursday
Japan: All Industry Activity Index. Eurozone: Current Account, Flash
Composite PMI, Flash Manufacturing PMI, Flash services PMI, Flash Consumer
Sentiment. UK: Retail Sales, CBI Industrial Trends. US: Initial Claims,
Existing Home sales, Leading Indicator, Philadelphia Fed Survey
Friday
Japan: BoJ Policy Statement. UK: Public Sector Borrowing. US: CPI, Flash
Manufacturing PMI.
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