The U.S. Comex gold futures (COMEX:GCG14) staged a rally of 2.18% on Tuesday to end at $1,261.10. The jump was the biggest percentage rise since Oct. 17. The CRB Commodities Index also jumped 0.76% this week. Year-to-date, the gold futures have fallen 24.75% while the S&P 500 Index (CME:SPZ13) has surged 26.39% and the Euro Stoxx 50 Index has risen 12.33%. The S&P 500 Index fell 0.32% on Wednesday after reaching an all-time high of 1808.37 on Tuesday. The Euro Stoxx 50 Index fell 0.64% this week after dropping 3.46% last week. The Dollar Index (NYBOT:DXZ13) also fell 0.44% this week after a similar drop last week. The 10-year U.S. government bond (CBOT:ZNH14) yield declined from a recent high of 2.8717% to 2.8006% on Tuesday.
U.S. Strength, China's Mixed Data and the EU Banking Plan
Last Friday, the U.S. reported that the November private payrolls jumped 203,000 compared to an expected 185,000 while the November unemployment rate fell by 0.3% to 7%. The December University of Michigan Preliminary consumer sentiment index has jumped more than seven points to 82.5, helped by rising employment, housing and stock prices. Investors are highly sensitive to the strength of the recent U.S. data in light of next week's FOMC meeting. In China, the recent trade balance has surged to a more than four-year high with exports jumping 12.7% and imports rising 5.3% year-on-year. However, the November industrial production data rose at a slightly lower-than-expected 10% while the retail sales rose 13.7% compared to the expected 13.2%. In Europe, the ministers are negotiating a banking union plan based on agreements amongst the governments but not the EU law.
The Weaker Dollar Has Helped Gold Prices
According to the CFTC, the net combined long positions in gold contracted almost 16% to 26,774 contracts during the week ending Dec. 3, a level last seen in mid-2007. A weaker dollar and more signs of rising Chinese gold demand ahead of the lunar Chinese New Year have helped to boost the gold prices, given the large amount of shorts in the market. Nevertheless, Barclays pointed out that should the gold prices drop below $1,200, an extra 100 tonnes of gold-backed ETP holdings will become loss-making, which may prompt more ETP selling. Watch the level of $1,200 as well as the FOMC meeting next week.