The Comex gold futures jumped the most last week since January this year, rising 4.21% to $1,159.20. This week, the gold futures declined 1.84% to $1,137.90 on Tuesday. The S&P 500 Index fell over five percent this week and corrected 12% since the 17 July peak. The Euro Stoxx 50 Index peaked on 13 April this year and has declined 14% since then. The crude oil futures dropped the most by 5.46% on Monday since early July and has rebounded 2.80% on Tuesday to $39.31. The Dollar Index dropped 1.57% last week and fell 0.53% this week to $94.53. The U.S. ten-year Treasury yield rose 3bp this week to 2.0714% on Tuesday while the German ten-year Bund yield jumped 17bp to 0.73% on Tuesday. The VIX Index surged to an intra-day high of 53% on Monday before ending at 36% on Tuesday.

Who is the Culprit?
As the Chinese PMI contracted further and the stock market suddenly nose-dived since Tuesday last week, global stocks plunged. The market fears more slowdown from China, which will further worsen the outlook for commodities. China reacted by cutting interest rates and the required reserve ratios for banks on Tuesday. The U.S. market no longer stays steady as earnings from reporting companies are likely to drop five percent year-on-year this quarter while the mutual funds and ETFs sold close to $80 billion of U.S. shares. Despite the U.S. consumer confidence index rising to 101.5 in August from 91 in July, beating the median forecast of 93.4, the market now believes that there is only a 26% chance of a rate hike in September compared to 48% just a week ago. Germany’s IFO Business Climate in August rose to 108.3, higher than the 107.6 expected. Nevertheless, the Eurozone GDP grew only 1.2% in Q2 compared to 1.3% expected.

Investors’ Positioning
The equity market turmoil has raised the bid for gold. The speculators’ net long combined gold positions increased to 12,764 contracts during the week ending 18 August from a net short of 2,794 contracts the week before. Speculators have been cutting their short positions for four consecutive weeks although shorts are still high at 104,288 contracts, showing that sentiment towards gold is still weak. As the stocks cratered in China, net gold imports from Hong Kong rose to 55 tonnes in July from 37 tonnes in June. India will likely increase gold purchases as the wedding season will start in October till March. In the short-term, uncertainties in the global stocks and the Fed policy are the biggest drivers of gold.

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