Gold Prices Reacting to European Volatility and Global Bond Uncertainty

London (May 6)  After being flat in April, the U.S. Comex gold futures rose $10 to end at $1,192.50 on Tuesday. In the first three trading days of May, the crude oil futures jumped 1.84% while the S&P 500 Index returned 0.20% and the Euro Stoxx 50 Index fell 1.69%. During the same period, both the U.S. ten-year Treasury bond yield and the German ten-year Bund yield jumped 15bp to 2.1853% and 0.516% respectively while the Italian ten-year bond yield surged almost 31bp to 1.807%.

Global Bond Yield, Greece, and the U.K. Election

 From a recent trough 1.3364% on 16 April, the Bank of America Global Broad Market Index has surged to 1.5418% by 5 May, helped by the surge in the bond yield in Europe and the Greece volatility. There has been no agreement between Greece and its creditors while the European Commission and the IMF disagree on the Greece terms. The European Commission recently raised the Euro Area 2015 growth from 1.3% in February to 1.5% and expected the region to avoid deflation. In fact, the Euro zone CPI stopped falling in April after declining in the four months prior, reflecting some success in the ECB’s QE. The Conservatives and the Labour votes in the May 7 U.K. election are tied, The Pound touched a five-year low against the Dollar in early April.

Gold Positioning

 With the volatility arising from the U.K. election on May 7, Greece’ one billion Euros debt payments on 6 May and 12 May, and the likelihood of a Greece referendum over the EU-IMF financial support, gold’s safe haven appeal is rising. The managed money net gold combined positions have risen from a trough of 31,653 contracts on 24 March to 60,653 contracts as of 28 April with the shorts contracts falling from 84,022 contracts to 63,573 contracts in the same period. As the crude oil prices have rebounded beyond $60 and the U.S. jobless claims have improved, the markets are expecting the inflation rate to rise, which will support gold prices. The gold-backed ETP holdings have also risen from the low on 8 April of 1,616 tons to currently 1,626.8 tons.

Source: SharpsPixley