U.S. bond market interest rates keep gold looking bearish

U.S. bond market interest rates have risen on the back of positive economic figures, whilst on the other side of the pond promising results strengthen the sterling pound. Looking ahead, a new deal could pave the way for further China gold investment as signs indicate demand is set to surge.

For the first time since June the yield on a 10-year Treasury note hit 4 percent. As shown in the graph below, it hasn’t ended the day above 4 percent since late 2008, before the credit crisis.

Treasury yields normally rise when the economy is stronger as investors shift their money from ‘safe’ government backed bonds into riskier investments such as stocks in the search for better returns.

What was the positive economic data?

The U.S. jobs market recorded its biggest improvement in the last 3 years. On Friday the U.S. Labour Department announced a total of 162,000 jobs had been created within the economy during March. Further still, 123,000 of those jobs had been created by the private sector, the largest since May 2007.

It is particularly pleasing for the U.S. economy as growth in the private sector is seen by many as the only true way of sustaining any recovery.

Monday brought further good news. The service sector in March grew at its fastest pace since 2007 according to a private trade group, and the U.S. National Association of Realtors claimed its index of sales agreements for February jumped 8.2% to 97.6%, economists had predicted a fall to 90.3%.

The gold price could be set for a bearish outlook, as investors are likely to look towards capitalising on a U.S. economic recovery by investing in the dollar. As discussed in the article: The Dollar-Gold Inverse Relationship, the gold price often falls when the dollar strengthens.

The pound

The pound had a great week. On Tuesday fourth-quarter growth was revised higher and the U.K. current account deficit curbed slightly.  On Thursday another positive indicator of economic recovery was the UK purchasing managers’ survey. Activity for March, in the manufacturing sector, increased at its fastest rate for more than 15 years.

Opinion polls have also put the Conservative party 10 points clear of the current seated party (labour). Sterling Investors are particularly keen on avoiding a hung parliament, with concerns over the current government’s ability to sufficiently tackle the UKs budget deficit.

Chinas Gold future

The World Gold Council (WGC), a council funded by the top gold mining companies to stimulate and sustain gold value, announced on Thursday that it had signed a memorandum of understanding with the Industrial and Commercial Bank of China, the largest bank by market value and most profitable bank in the world.

“Both parties will explore and jointly develop new gold investment products tailored to the
Chinese market, and conduct surveys and studies on the domestic retail gold investment
market, facilitating financial innovation and product diversity. In addition WGC and ICBC
Precious Metals Business Department(s) will set up an ICBC/WGC Gold Business Strategy
Board to discuss and plan strategies for their cooperation, as well as an Action Team to
oversee the implementation of the decisions and initiatives adopted by the Strategic Group.”

The WGC commented on their website.

Gold demand in China set to double in ten years

In a press release dated 29 th March 2010, Marcus Grubb, Managing Director, Investment at WGC, said:

“Now one of the world’s largest economies, China has already rapidly become a prominent gold market. However, our analysis confirms that significant untapped growth potential exists in the Chinese gold market. In China, if gold demand continues to accelerate and becomes more comparable with other major markets, WGC expects it to double in tonnage terms within the next decade, which would represent annual gold demand of approximately US$29 billion at year end 2009 average prices.”

http://www.gold.org/assets/file/pr_archive/pdf/China_Report_press_release.pdf

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Gold Price Today

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Information in Gold Price Today is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision.