The Gold Market Takes its Short-term Cues from Inflation and Swiss Referendum

The U.S. Comex gold futures rebounded 0.45% this week to $1,190.90 on Thursday and climbed one dollar higher during Friday Asia morning. The Dollar Index has hardly changed this week and ended at 87.591 on Thursday. The S&P 500 Index has returned 0.67% while the Euro Stoxx 50 Index has jumped 1.45% and the CRB Commodities Index has dropped 0.32% week-to-Thursday. The crude oil futures rebounded 1.34% on Thursday to $75.58 and opened above $76 in Asia on Friday. The U.S. ten-year government bond yield jumped almost 2bp to 2.337% this week while the German ten-year Bund yield climbed 1bp to 0.797%.

U.S. Outlook Improving and Market Fear on Interest Rate Rise

The U.S. economic leading indicators for the next three to six months rose 0.9% in October compared to 0.6% expected due to rising business investment amidst lower oil prices and some improvement in the labour market. However, what is clear from the recent FOMC minutes is that the Fed will take its time to raise interest rates until it sees inflation rising confidently above two percent and the labour market indicators getting much stronger. However, this does not stop the gold market from worrying about the Fed will raise interest rates sooner than expected next year. The trend of disinflation in the U.S., Europe, and China, as oil prices have collapsed, has further soured the sentiment towards gold. The composite Euro Area PMI fell to a sixteen-month low of 51.4 in November while the manufacturing PMI in China fell to 50 in November from 50.4 in October.

Swiss Referendum

The SPDR Gold Trust holdings have declined about 20 metric tons this month and almost 80 tonnes this year. The gold exports from Switzerland have jumped 13% to 192.8 tonnes in October. The latest opinion poll on the “Gold Initiative”, which aims to raise the gold reserves in the central bank to at least 20% among all assets within the next five years and to ban the central bank from selling more gold, shows that the opposition vote may have risen to 47% from 39% a month ago.

What to Watch

We will monitor the November Germany IFO business climate on 24 November, the November U.S. consumer confidence index on 25 November, the October U.S. Core PCE price index and personal spending on 26 November, the Eurozone private sector loans, the October Japan inflation data, and the OPEC output meeting on 27 November as well as the Swiss Referendum on Gold on 30 November.