Preparing for a Weak Q3 for Gold

The U.S. Comex gold futures have fallen every day this week and were down 2.5% for the week to $1,171.80 on Thursday. In the past two days, the S&P 500 Index fell 1.02%, the Euro Stoxx 50 Index was down 0.36%, and the crude oil futures fell 2.15%. The Dollar Index also retreated 0.26% in the last two days after jumping 1.43% in the first two days of the week. The U.S. ten-year Treasury bond yield rose 15bp this week to 2.409% on Thursday while the German ten-year Bund yield rose 11bp to 0.859%.

Better Consumer Data in the U.S. and Japan
The May U.S. household spending rose 0.9%, the biggest jump since August 2009 while the U.S. latest weekly initial jobless claims were 271,000, beating expectations. The May core PCE price index was steady at 1.2% year-on-year, indicating little inflationary pressure. In Japan, the real household spending jumped 4.8% year-on-year, the first yearly increase since March 2014. Japan is so far refraining from adding to its monetary stimulus as inflation is creeping up.

Q3 Can be a Weak Quarter for Gold
Barclays pointed out that for the entire Q2, gold prices have traded in a $50 range despite the volatility from Greece. This was the lowest price range since before the financial crisis. Quarter-to-date, the gold futures have fallen close to one percent. Gold-backed ETF holdings have also fallen in the past two months. Barclays also predicts that the market expectations of a Fed rate hike and sluggish physical markets can turn Q3 to be the weakest quarter for gold prices. However, improving physical demand will likely pull up gold prices afterwards.

What to Monitor
We will monitor the finance ministers’ crucial discussions on Greece this Saturday. On 30 June, the IMF money would need to be repaid while the current bailout package for Greece would expire. We will also monitor the June Germany unemployment change, the May Eurozone unemployment rate, and the June U.S. consumer confidence index on 30 June, the June final manufacturing PMI for China, the Eurozone, and the U.S. on 1 July as well as the June U.S. non-farm payrolls and the June U.S. unemployment rate on 2 July. The U.S. market will close on 3 July.