After suffering from the biggest quarterly decline in Q2 2013, the U.S. Comex gold futures (COMEX:GCZ13) rebounded 8.40% in Q3. On Tuesday, the gold futures dropped 3.05% to $1,286.10 after falling 0.89% on Monday. During Asia Wednesday morning, the prices traded above $1,290. The S&P 500 Index (CME:SPZ13) rose 0.80% on the first day of the U.S. Government shutdown and climbed 4.69% in Q3 while the Euro Stoxx 50 Index surged 11.16% in the past quarter and rose 1.38% on Tuesday. The Dollar Index (NYBOT:DXZ13) fell 3.51% in Q3 and fell 0.10% on Tuesday. The CRB Commodity Index climbed 3.60% in the last quarter but declined 0.53% on Oct. 1. The U.S. 10-year government bond (CBOT:ZNZ13) yield ended the quarter at 2.61%, from 1.7574% at the end of last year.
U.S. and China Disappoint while Europe Gains
The U.S. government began its partial shutdown starting Oct. 1, costing an estimated $10 billion a week and delaying the release of economic data. The debt limit of $16.7 trillion will be reached on Oct. 17. China's official September PMI was at 51.1, lower than the expected 51.6, raising concerns that the economy's momentum is not that strong. On the other hand, the September U.S. ISM Manufacturing Index was higher than expected at 56.2 while the Euro Area ISM in September was at 51.1, expanding for the third month. The market does not think that the U.S. government shutdown will last long and has sold gold and bought riskier assets. However, a last-minute debt deal could raise the safe-haven bid for gold while economic damages from the U.S. shutdown could delay the Fed's tapering and support the gold prices.
Investors' Positioning and Gold Premiums
The combined net gold speculative positions rose 6.52% in the week ending Sept. 24 while they fell a total of 28% in the previous two weeks. However, as Barclays pointed out, the gold-backed ETP holdings fell another 26 tonnes in September with year-to-date outflow at 697 tonnes. While the seasonally strong gold demand season in India has begun, gold purchases remain very price sensitive, and the government's hike on import duties certainly has not helped. Premiums in India went from $40 earlier in September to about $5 to $7/oz while those in China's Shanghai Gold Exchange is now at $7/oz compared to the $30 level seen in April and May. Still, the World Gold Council expects the Chinese gold consumption to grow in line with GDP growth, which is expected to be around 7.5% (real).