US gold futures continued to weaken on Wednesday and Thursday, falling 0.9% to $1,565.3, and underperformed the broader markets. In the past two days, the S&P and the Stoxx 50 dropped 0.5% and 0.6% respectively, while the euro/dollar fell 0.38% to another two-year low. The CRB commodity index climbed 0.56%, and the dollar Index went up 0.31%. US and the German 10-year government bond yields rallied by five and seven basis points respectively, approaching the 20-year low level reached in the beginning of June.
Gold prices retreated, as the US Federal Reserve did not indicate an imminent QE3 in the FOMC minutes released yesterday, although some members favored further policy easing if the Fed's dual objectives of full employment and stable prices cannot be achieved. However, the FOMC meeting took place before the US Labor Department reported a weak payrolls number in June. Next week, Ben Bernanke will testify before the Congress on the US economic outlook, giving the market more insights on his thinking.
On Thursday, Moody's cut Italy's sovereign rating two notches to Baa2 from A3, and warned of further downgrades, due to Italy's higher funding costs, contracting growth, and risks from Greece and Spain.
Although the euro area's industrial production surprisingly climbed 0.6% in May, helped by Germany's rebound of 1.5%, the euro area is still expected to contract in Q2. According to the Washington-based Pew Research Center, the global economic mood is still pretty grim: a median of 27% of the 21 surveyed countries consider their economy is doing well, with the number for the US at 31%, and that for Europe at 16%. A surprise rate cut by Korea, and the plunge of Singapore's GDP to -1.1% in Q2 reflected external weaknesses, and the impact from European's debt crisis. China's Q2 GDP slowed to 7.6% in Q2 from 8.1% in Q1, allowing China more room to ease.
On Wednesday, the world's second largest gold company, Goldcorp, cut back its 2012 gold production by about 200,000 ounces. Earlier in June, South Africa reported gold production was down 12.8% year over year in April. Operational delays and safety-related maintenance issues have restricted gold supplies.
Next week, the events to watch include Bernanke's testimony to Congress on July 17-18 and the E17 group meeting on July 20.
