Gold drops to fresh five year low

Friday, July 24, 2015

Gold prices slumped to their lowest levels since early 2010  as a combination of abating Greek debt concerns, the expectation of a US rates rise and the dissipating threat of deflation see investors fall out of favour with the precious metal. Prices spiked down towards $1,077.40/oz during Asian trading but were quick to recover at least some of the heavy losses and are currently trading around $1,085/oz. The yellow metal has seen over 4.0% declines this week so far with the bearish run now extending for the fifth consecutive week. A stronger dollar has been behind much of gold’s move lower as speculation that the US Fed is moving closer to increasing interest rates prompts investors to rebalance portfolios in search of higher yielding assets. Adding to the bearish short term outlook for the yellow metal has been the recent volatility in Chinese equity markets, which have posted both double digit gains and losses in what has been a very volatile few months. With a more hawkish tone being struck by central bankers in the US and UK and sluggish physical demand from Asian buyers we could see spot gold prices trade under significant pressure in the coming weeks.

Athens extended the shutdown of Greece’s financial markets at least until Monday as officials prepared to meet creditors to negotiate the terms for its third bailout. The Athens Stock Exchange has been closed since the 29th of June as the government sought to shore up the financial system and prevent further capital flight from worried investors. Officials on both sides are hopeful for a final agreement well ahead of the August 20th, when a payment of €3.2bn to the ECB comes due, which would gradually placate market participants and see a restoration of normality as market confidence returns. The euro strengthened towards 1.1000 against the dollar yesterday and seems to be holding tentatively to levels just below, early on this morning. However, a strong dollar owing to bullish US economic data yesterday, which saw initial weekly jobless claims fall to their lowest level in forty years, will likely rein in any attempts to rally significantly above 1.1000 in the near term.

Chinese equity markets ended the week on a positive note with the Shanghai Composite index posting gains for a seventh straight session, adding a modest 2.8% this week, as the PBOC took additional measures to shore up the market. Central bankers in Beijing prohibited the sale of shares by large investors and went further still by using central bank funds to bolster the market as well as suspending IPOs. Critics argue that the persistent and aggressive intervention by policymakers in Beijing will only reflate the bubble which saw mainland stock indices add as much as 60% throughout the first half of the year, only to retrace half those gains throughout the second half of June and first half of this month before recovering 20% so far from this month’s nadir.  

Gold prices slump to fresh multiyear lows

XAU Curncy Gold Spot Oz D 2015 07 24 07 18 12

EUR firms towards 1.1000 against USD

EUR Curncy Euro Spot 2015 07 24 08 00 25

Initial jobless claims fall to four decade low

INJCJC Index US Initial Jobless 2015 07 24 08 03 46

Events for today

0245

CN

Jul

HSBC Manufacturing PMI

0830

DE

Jul

Markit Services PMI

0900

EZ

Jul

Markit Services PMI

1445

US

Jul

Markit Manufacturing PMI

1500

US

Jun

New Home Sales

OE: 

Aug  Natural Gas (NYMEX) 

Aug  Copper & Gold (COMEX) 

Topics: US Fed, Gold, ECB, EUR, Greece
More from: Kash Kamal