Gold Prices Dipped but Still Within the Range

After declining 0.36% last week, the U.S. Comex gold futures fell 0.73% this week to $1,295.90 on Tuesday while the Dollar Index rallied 0.56% this week to 81.883. The S&P 500 Index jumped 1.36% in the past two days while the Euro Stoxx 50 Index surged 1.90%. After dipping to as low as 2.3011% intra-day last Friday, the U.S. ten-year government bond yield settled at 2.401% on Tuesday. The German ten-year Bund yield also fell to 0.9489% during Friday and ended at 1.001% on Tuesday. The crude oil futures tumbled 2.52% this week to $94.90 on Tuesday after dropping 0.31% last week.

U.S. Economic Data not Helping Gold
With the U.S. July yearly housing starts coming in at 15.7% after a fall of 9.3% in June and the July month-on-month CPI being 0.1% (2.0% year-on-year), suggesting stronger growth with little inflation, gold prices have little to cheer about. Crude oil futures, despite the fighting in Iraq, have fallen almost 12% since the end of June. Ukraine has strengthened its foothold against the rebels in the East, and the German Chancellor will meet with the President of Ukraine to try to ease the conflicts, lowering the safe-haven bid for gold. Investors and traders will look forward to the central bankers’ speeches at the Jackson Hole Economic Symposium this weekend on monetary policy and the labour markets.

Traders Closing Shorts
The managed money net combined positions in gold have jumped 28.43% during the week ending 12 August to 133,708 contracts as the short positions have tumbled 36.23% to 20,808 contracts. In fact, the total combined (commercial and non-commercial) short gold contracts were near the level in September 2009 when gold prices were below $1,000. Barclays pointed out that the low level of shorts underscores the fragility of prices. Nevertheless, physical demand, while not strong, is expected to pick up next quarter as the Indian wedding and festival season arrives. The central banks, especially the emerging countries, remain steady buyers with the net central bank gold purchases up nine percent year-on-year during H1.