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Commodity Update; Gold – 12 April 2015

Gold recovers on uncertainties over economic growth & Greece; division emerges among US rate setters

Gold has risen sharply since our last update as investors were left to digest a shockingly poor US payrolls report for March, which has now left many questioning the Federal Reserve’s likely resolve to begin raising rates this summer.

Interestingly enough the most recent round of FOMC meeting minutes, which were released last week, highlighted a deep division between US policy makers on the issue of when to begin hiking.

According to the minutes some believe that a rate hike could be appropriate as soon as June, while others believe that a stronger US dollar will weigh on economic activity in the run up to the summer period and that this could justify holding rates at current levels until later in the year.

Furthermore, growth figures for Q1 are expected to highlight the cooling temperature of both the US and the UK economies later on this month, while recent data from China continues to allude to the possibility of a further slowdown in the world’s second largest economy.

As a result, some investors have once again begun to bet on a more protracted period of lower economic growth and lower interest rates.

This is while Greece remains an issue for the investor community. While the nation managed to make its Friday loan payment to the IMF last week, one of approximately $500 million, the country still has just over 3 billion euros worth of payments to make over the next four to five weeks.

Given that the nation has very little by way of cash left in the till, the above figure will certainly be enough to cripple the country and cause chaos if it fails to secure the release of further bailout funds sharply.

In short, time is now running out for Greece and rather alarmingly, progress in negotiations appears to have stalled, while the nation’s relations with the group of European finance ministers is also deteriorating rapidly.

This uncertainty over the future of Greece, combined with the cooling of global economic growth in Q1, should continue to provide some form of support for gold over the next few weeks.

However, we caution that the performance of the metal will be sensitive to upside surprises in terms of economic data, in addition to the potential for a sudden resolution to Greece’s dispute with the group of European finance ministers.

Spot Gold / Q1 2015

GOLDQ1

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