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Group Name: Hedge of Glory Evaluation Period: November 17-21Weeks Covered: Nov1-Nov 15 Overall Forecast Price Direction for Evaluation Period:Down

Dollar Advances on Sales as Treasuries Decline With GoldWriter: Stephen Kirkland and Oliver Renick Date: November 14, 2014Source link: http://www.businessweek.com/news/2014-11-13/most-asian-futures-rise-amid-dow-record-oil-extends-dropSummary: Dollar strengthened by 0.7 % to 116.57 yen, marking a seven-year high against the Japanese currency. Meanwhile, treasuries declined as yield on 10-year bonds increased by 3 basis points to 2.37%. Main factors included positive US retail report in October which showed that retail sales increased for the month (0.3% increase from a 0.3% decrease last month), better corporate earnings and positive US economic data after the end of Feds QE program. At the same time, dollar grew against 12 other currencies--Dollar spot index rose 0.4 percent last week.

Effect on Gold Price over Evaluation Period:DirectionDown

ExplanationThere has been an increase in retail sales in October in the United States, which led to an increase in the yield of treasury and stronger US dollar. Also, despite global slowdown, the S&P 500 rallied 9.5 percent after a six-month low in October, and it has exceeded the expected corporate earnings and economic data. Because of this, confidence in the U.S. economy boosted. All of these resulted to a strengthened dollar, which decreases the demand for gold as it is now more expensive to buy, and at the same time, booming economy lowers demand for safe-haven assets--effectively decreasing the price of the gold.

PRECIOUS - Gold down on drop in oil prices, bright US outlookWriter: Frank Tang and Jan HarveyDate: 13 November 2014, 2:55 p.m. ESTSource link: http://www.reuters.com/article/2014/11/13/markets-precious-idUSL3N0T34M120141113

Summary:Oil prices slumped resulting to golds decreased demand as an inflation hedge. Also, the continued outflow from gold backed exchange traded funds (ETF) signifies further possible inclined losses of gold. The 4 percent drop in oil prices is revealed by government data that US crude build up rose at the delivery point for crude futures. Oil prices plummeted about 30 percent since Brent Crude hit a June high above $115 on fears of an oil oversupply.


ExplanationOil having a strong correlation with gold, has been a good tool in predicting gold prices. With the slumping price of oil, it has decreased golds appeal as an inflation hedge. Prices of oil partly account for inflation, thus, the fall of the latter means that there is a lower demand for gold as a safe haven. This is also supported by outflow from gold backed exchange traded funds (ETF). Thus, with the strong correlation of oil and gold prices, reduced prices of oil bring the price of gold to go down.

Banks to return 1.95 billion euros in crisis loans to ECB next weekWriter: John O'DonnellDate: 14 November 2014Source link: http://uk.reuters.com/article/2014/11/14/uk-ecb-banks-repayment-idUKKCN0IY17420141114?feedType=RSS&feedName=businessNews Summary:Next week, 1.95 billion euros will be returned by banks in crisis loans to the European Central Bank after it started offering lenders new four-year loans at cheap rates in September. It will hand out another tranche on December 11. For now though, it is still cheaper for banks to rely on the ECB's regular refinancing operations, where they can fund themselves at record low rates of 0.05 percent. As a result, the ECB's first offer of the new loans, known as TLTROs, fell flat last month, with banks taking just 82.6 billion euros, less than expected.


ExplanationWith the 1.95B euros in crisis loans to be repaid to ECB on Nov 19, money supply in Europe will decrease. As a result of this contraction in money supply, deflation is expected to occur that may cause depreciation in euros value. Since euro is negatively correlated to dollars, its depreciation will imply dollars appreciation. Given that gold is denominated in dollars, the currencys appreciation will make gold more expensive than before, making the demand for it to decline. In effect, the commoditys price will be pushed downwards.

Overall PositionForecast over the evaluation period: Down

Given our preceding analysis, we expect gold prices to go down. The strengthening of the US dollar, the slump in oil prices, and the contraction in Europes money supply are the major factors that drive the gold prices down. The increase in retail sales led to increase in treasury yield. The bright outlook on the US economy and the depreciation of the Euro strengthened the dollar. Likewise, the drop in oil prices further pushes the prices to decrease.

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