Quantcast
Other Stories

With the S&P 500 rising to 2007 highs, and US Treasuries above 2%, gold prices came under pressure, exacerbated by the FOMC minutes released for January.

26 Feb 2013

Commodity Online
Noting that Gold’s correlation with traditional drivers has weakened, Barclays has projected Q1 2013 gold prices at $1710/oz and annual average at $1778/oz in a report.

As alternative yield-bearing assets have outperformed, gold’s safe-haven appeal has lessened. Gold’s correlation with equity markets was stronger last year, but the negative relationship with US 10y Treasuries has strengthened, the report noted.

With the S&P 500 rising to 2007 highs, and US Treasuries above 2%, gold prices came under pressure, exacerbated by the FOMC minutes released for January.

The improvement in physical demand needs to strengthen for prices to be cushioned. Gross short speculative positioning is at its highest since July 1999 but ETP outflows will become the key downside risk, in our view, should gold fail to respond to macro triggers.

The market interpreted the January FOMC minutes as hawkish, in turn, equities sold off, the USD was bid against most other currencies and gold tested seven-month lows.

“Our economists note there was much focus on some members evaluating the risks of asset purchases and the potential to taper or end purchases before the labour market improved.” Barclays noted.

They note Chairman Bernanke and Vice Chair Yellen remain concerned about exiting the Fed’s accommodative policy stance too quickly. Hence, maintain their expectation that the Fed will conduct asset purchases through the end of 2013, with some tapering in the pace in the second half of the year.

Market focus shifts to Fed Chairman Bernanke’s semi-annual testimony on Tuesday. The economists look for Chairman Bernanke to defend the FOMC’s asset purchase program vigorously and to give no signal that the program is likely to be slowed or stopped soon.

Thereafter in the US, the deadline for the sequester approaches on March 1.

Here again, economists note there appears to be little sign an agreement will be reached to avoid the across-the-board cuts. While there remains a possibility that a full or partial reversal of them could form part of a deal to extend or replace the current continuing resolution, which expires on 27 March, there is an increased likelihood that government expenditures will slow by more in 2013 than currently factored into their forecast.

They estimate that if the sequester takes effect in full and remains in place for the duration of the year, this would leave growth about 0.4pp lower this year.

They also note if the sequester is allowed to proceed in its current form, it would raise the risk that QE tapering could begin later, in their view.


YOUR RESPONSE
Click on the image to reload it
Click to reload image
COMMENTS (0)

@2013 COMMODITYONLINE ALL RIGHTS RESERVED