Commodity Prices Have Been Hammered in the Last Few Months
Commodity prices have been hammered recently due to weak demand. The dip in oil prices is due to demand and supply factors.
As of March 16, residential heating oil prices averaged $3.03 per gallon, $0.18 per gallon lower than last week and $1.09 per gallon lower than a year ago.
Utilities could underperform since they’re more sensitive to a rate hike than cyclical sectors such as technology (XLK) and financials (XLF).
Higher equity volatility will support bonds going forward. This year, so far, the VIX has been generally higher than last year.
The US dollar is on a multiyear high, putting downward pressure on gold. The dollar isn’t expected to weaken, which implies that the gold outlook is gloomy.
Many industry experts, including the World Gold Council, believe that 2014 was the peak year for gold mine production.
India’s real interest rate has moved up rapidly in the last few months due to declining inflation.
In January, Indian gold imports climbed 55%. This comes on the heels of easing import restrictions by the Reserve Bank of India.
An increase in the Chinese real interest rate on savings motivates people to put their money in savings instead of investing in gold.
All mined or imported gold in China can only sell through the Shanghai Gold Exchange. By tracking the SGE, investors can see China’s short-term demand.
China is importing gold from Hong Kong. Net imports from Hong Kong to mainland China totaled 71.6 metric tons in 2014 compared to 58.8 tons in December.
There are 14 known gold ETF holdings. Global ETFs are selling physical gold to the tune of about 20 tons in one month ending March 9.
Lower crude oil prices mean lower inflation. This should have a negative effect on gold since gold is usually considered a hedge against inflation.
The gold price increase kept pace with the global money supply until recently. The relationship between the two appears to have broken.
The US budget deficit was $17.5 billion for January. The surplus for December was $1.9 billion. A year ago, the budget was in deficit $10.2 billion.
As US public debt rises beyond a certain point, the country will have to increase taxes and cut spending in order to service the interest.
The US trade deficit, excluding oil, hit a record high in January, while overseas economies, including the Eurozone and Japan, are weakening.
For January, the Leading Economic Index increased 0.2% to 121.1 following December’s increase of 0.4%. This was the fifth month the index reported a rise.
US labor market figures for the employment situation for February were either in line with or better than expectations.
The US Dollar Index value increased from 95.46 on March 2 to 99.68 on March 11, a gain of 4.4%. This steep rise is the main reason gold has been falling.
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