Gold fell for a third day as a recovery in equities markets diminished the appeal of the metal as a haven and Goldman Sachs Group Inc. said the rally to a one-year high last week wasn’t justified.
Bullion for immediate delivery slid as much as 1.5 percent to $1,191.02 an ounce and traded at $1,196.57 at 3:59 p.m. in Singapore, according to Bloomberg generic pricing. The metal surged to $1,263.48 on Feb. 11, the highest level since February 2015. Shares of producers Newcrest Mining Ltd. and Zijin Mining Group Co. retreated.
Gold has pared its advance this year to 13 percent amid a rebound in Asian stocks, which is increasing risk appetite among investors after a flight to haven assets this year. Bullion markets may take comfort from European Central Bank President Mario Draghi’s comments Monday on his willingness to act should financial turmoil threaten price stability. Goldman Sachs recommended shorting the metal.
Stocks Rally
“The rally in equity markets has halted the upward move in gold for now,” said Jordan Eliseo, chief economist at Australian Bullion Co. in Sydney. The promise of more easing from the ECB and other developed market central banks will be supportive of bullion, though rallies in risk assets and the dollar will continue to exert downward pressure, he said in an e-mail.
The MSCI Asia Pacific Index rose 0.8 percent, extending a rally that lifted the regional equities gauge from the lowest level since 2012, as energy and financials shares climbed. The measure jumped 4.1 percent Monday, the biggest advance since September.
Gold prices will slump back to $1,100 an ounce in three months and $1,000 an ounce in 12 months, Goldman analysts including Jeffrey Currie and Max Layton wrote in a report received on Tuesday, reiterating targets in a note last week. It’s “time to sell the fear barometer,” the bank said.
Bullion of 99.99 percent purity declined 0.9 percent to 251.39 yuan a gram ($1,200.81 an ounce) on the Shanghai Gold Exchange. Spot silver fell as much as 1.3 percent to $15.1432 an ounce in London, platinum dropped 0.7 percent while palladium slid 0.6 percent.
Image copyright ImagesImage captionJapan's population is growing old and shrinking, which is worrying for the country's long-term economic outlook
Japan's economy contracted in the final three months of 2015, adding to a string of setbacks for the government's economic reform policy.
Between October and December, it shrank by 0.4% compared with the previous quarter, official figures show.
Expectations for the numbers were for a quarterly contraction of 0.3%.
Weaker domestic demand, together with slower investment in housing, contributed to the disappointing numbers.
On an annualised basis the economy contracted 1.4% during the period. That compares with expectations for an annualised contraction of 1.2%.
The annualised figure is the rate at which the economy would have contracted over a full 12 months had the December quarter been a reflection of the entire year.
Ensuring exports grow
Image copyrightImage captionPrivate consumption makes up some 60% of Japan's economic activity
Prime Minister Shinzo Abe's plan to revive the economy - dubbed Abenomics - was introduced after his December 2013 election win.
Its aim was to combat deflation, which Japan has struggled with for nearly two decades, as well as boost demand and investment. It also wanted to weaken the yen, so helping big exporters like Toyota become more competitive.
But growth has remained a concern. Analysts say Japan needs to ensure exports grow in order to support future economic growth - for every 1% that Japan's economy grows, between 0.5 and 0.7% comes from exports.
The country also relies heavily on domestic consumption but its population is ageing and shrinking so fewer people are contributing to the economy.
Analysis: Rupert Wingfield-Hayes, BBC News, Tokyo
There has been a lot of hyperbole surrounding the Abenomics project.
The Bank of Japan's vast money printing project has been described as a "money-spewing bazooka".
Image copyrightImage captionPrime Minister Shinzo Abe's economic policy has been dubbed Abenomics. The policy was introduced after his December 2013 election win.
Mr Abe's economic policy - Abenomics - is based on three arrows:
The monetary arrow: expansion of the money supply to combat deflation
The fiscal arrow: increased government spending to stimulate demand in the economy
The structural arrow: structural reforms to make the economy more productive and competitive
Haruhiko Kuroda, governor of the country's central bank, has repeatedly said he will do "whatever it takes" to defeat 20 years of deflation.
But the core of Abenomics is not reflation; it is weakening the Japanese currency, the yen.
Why? Because Mr Abe and his advisors know that the only easy way to get Japan growing again is to increase exports - the most important engine of growth for Japan, say analysts.
Image copyrightImage captionUntil December, Japan's exports were growing, thanks to a lower yen
In the three months to September, according to revised numbers, Japan avoided a technical recession. But it has already been in recession four times since the global financial crisis.
Some analysts said Monday's numbers should be viewed in context.
"A single negative growth number should not be over-interpreted because the economy remains in rather good shape and continues to get strong policy support," said economist Martin Schulz.
Stock market worries
Image copyright
Investors seemed to shrug off Monday's growth numbers, with the benchmarkNikkei 225 jumping more than 4% shortly after the figures were released.
However, the benchmark shed more than 11% last week, which was a short trading week due to a public holiday on Thursday.
The country's big exporters were particularly hard hit as a stronger yen against the dollar hurt investor sentiment.
"Until December, exports have still been growing, thanks to a lower yen," said Mr Schulz. "But both trends have already been reversed during December, and the yen is rallying now," he added.
Other growth efforts
Image copyrightImage captionThe BOJ's Haruhiko Kuroda has dismissed suggestions recent stock market falls were linked to the introduction of negative interest rates
The rate cut into negative territory - the first ever for Japan - is designed to increase spending and investment, which should in turn boost economic growth.
Some analysts however have cast doubt over how effective the rate cut will be. Mr Schulz said weaker investment, including housing investment, would probably carry on well into 2016.
"While lower interest rates certainly help investment, construction now faces restraints from the demand side because housing prices are already so high."
Consumer sentiment declined in February to a four-month low as declining stock prices and weaker global conditions weighed on Americans’ views of the economy.
The University of Michigan’s preliminary index decreased to
90.7 from 92 in January, a report showed Friday. The median projection in a Bloomberg survey called for 92.3. While sentiment cooled for a second month, so did households’ long-term inflation expectations, which declined to the lowest in records to 1979.
A weakening of sentiment reflected the impact of the recent turmoil in equity markets, fueled by everything from declining oil prices to a dimmer global outlook. At the same time, households were more upbeat about their financial prospects because they expect inflation to remain low.
“Consumers tend to feel much better about not only their ability to consume in the near-term when they have a little bit more cash in their pocket,” Thomas Simons, a money-market economist at Jefferies LLC in New York, said before the report. “But they also feel better about their longer-term inflation prospects too, being somewhat lower.”
Retail sales climbed 0.2 percent in January, the third straight monthly advance, as Americans kicked off 2016 by spending on cars, clothing and online merchandise.
Consumer confidence estimates from 64 economists in the Bloomberg survey ranged from 89.9 to 94.
The report’s gauge of current conditions, which tracks Americans’ perception of their personal finances, fell to a three-month low of 105.8 from 106.4. Even with the decline, the share of households reporting that their financial situation had improved rose to 45 percent, the highest in six months.
Income Expectations
“When asked about expected income gains during the year ahead, an increase of 1.6 percent was anticipated across all households, twice last month’s low of 0.8 percent, and just above the median expected increase recorded on average during 2015,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement.
The gauge of expectations six months from now dropped to 81, the weakest since September, from 82.7.
Americans expected the inflation rate over the next five to 10 years to be 2.4 percent, down from 2.7 percent and the lowest since the late-1970s, when the university began asking about price expectations.
In the next year, they anticipated inflation will be 2.5 percent, unchanged from January and down from 2.8 percent in
2015.
Labor Market
Persistent job growth continues to underpin sentiment. Payrolls climbed by 151,000 in January and the jobless rate dropped to an eight-year low of 4.9 percent, according to the Labor Department.
Strong hiring helped push wages up by 0.5 percent last month as employers started to feel more pressure to increase pay to retain or attract talent.
The Michigan report corroborates some of the data from the Bloomberg Consumer Comfort Index. In that survey, attitudes about whether it was a good time to spend advanced to the highest in nine months in the week ended Feb. 7.
The university’s data showed “buying plans remained favorable due to discounted prices and low interest rates,” Curtin said. “Favorable buying attitudes toward household durables and vehicles declined slightly from last month but remained more favorable than a year ago.”
What’s more, home-selling conditions were viewed by respondents as the most favorable since April 2006.
US Federal Reserve chair Janet Yellen has poured cold water on the prospect of a second rise in interest rates any time soon.
She warned financial conditions in the US had become "less supportive" of growth.
The US central bank released Ms Yellen's prepared comments ahead of her latest appearance before Congress.
The bank raised interest rates by 0.25% for the first time in nine years in December.
In her prepared testimony, Ms Yellen said: "Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers and a further appreciation of the dollar.
"Against this backdrop, the [Federal Reserve] Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labour market indicators will continue to strengthen."
'Intensified uncertainty'
Ms Yellen added China's "unclear" currency policy was fuelling global stock market volatility.
She said the decline in China's currency, the yuan, had "intensified uncertainty about China's exchange rate policy and the prospects for its economy".
"This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth."
While she said she was confident China's economy was not facing a "hard landing", Ms Yellen said the overall uncertainty created by the world's second-largest economy was behind some of the steep falls in global commodity prices, which in turn were creating stress for exporting nations.
Ms Yellen added that "low commodity prices could trigger financial stresses in commodity-exporting economies" as well as in commodity-producing firms around the world.
If such problems materialised, she added, "foreign activity and demand for US exports could weaken and financial market conditions could tighten further".
In response to the comments, Brian Jacobson from Wells Fargo Asset Management said: "I think she pushed out the next rate hike.
"Until there is stability in the price of oil and the value of the dollar, I wouldn't expect much more action out of the Fed," he told Reuters.
Stock market turmoil
US stock markets opened higher after the comments.
Recent stock market turmoil has prompted most Wall Street analysts to push back their forecast of when the next US Federal Reserve interest rate rise will occur, from March to June at the earliest.
US stock markets have taken a battering in recent weeks over concerns caused by the economic slowdown in China, which has in turn led to lower commodity and oil prices, while the weaker yuan has made Chinese exports cheaper than those from the US.
The Dow Jones is down some 8.5% since the start of the year, the S&P 500 is down more than 9% since 1 January and the Nasdaq is lower by 14%.
US economic growth in the last three months of 2015 also slowed dramatically, to 0.7% compared with the same period a year earlier, falling from 2% three months earlier.
The pound is suffering as the forthcoming referendum on Britain’s membership of the European Union looms large. And with no date for the vote having been set, traders are signaling there’s little chance of a sustained rebound in the U.K. currency.
Sterling depreciated for a second week against the euro as Prime Minister David Cameron lobbied other government leaders on a deal that may allow him to hold a vote as early as June. A date is only likely to be set, though, following a summit in Brussels on Feb. 18-19.
Some polls show support for “Brexit” is increasing, with 45 percent of respondents to a YouGov Plc survey this week saying they’d vote to leave, while 36 percent wanted to stay and 19 percent were undecided. The economy is unlikely to prove sterling’s savior in the interim, with reports in the coming week forecast by analysts to show manufacturing and industrial production stagnated in December.
“The pound will remain choppy until we have a clear date for the EU referendum vote,” said Viraj Patel, a currency strategist at ING Bank NV in London. “Data comes last in the pecking order of factors influencing the pound now with global risks and Brexit coming before that.”
The U.K. currency slipped 1.2 percent in the week to 76.99 pence per euro as of 5:15 p.m. London time on Friday, having depreciated in 10 out of the past 11 weeks. It fell Friday to $1.4469, paring its weekly gain to 1.6 percent.
Options Bears
Traders have become more bearish on sterling versus the euro this year. The premium for three-month options to buy the shared European currency against the pound, over those to sell, climbed to 0.74 percentage point, from 0.24 percentage point on Dec. 31, data compiled by Bloomberg show.
Britain’s uneven recovery has prompted investors to push back the prospect of an interest-rate increase by the Bank of England until after April 2017, according to forwards prices.
Ian McCafferty, the BOE’s only policy dissenter of the past six months, dropped his call for higher rates on Thursday, while officials cut their growth and inflation forecasts. Sterling fell even as Governor Mark Carney said the whole rate-setting committee still thinks the next move will be an increase.
U.K. government bonds were little changed this week. The yield on the benchmark 10-year gilt held at 1.56 percent, while the price of the 2 percent security due in September 2025 was 103.90 percent of face value.
China's foreign currency reserves plunged by $99.5bn in January, the People's Bank of China reported.
China has been running down its vast foreign currency reserves in an attempt to boost the value of its own currency and stem a flow of funds overseas.
At $3.23 trillion, China still has the world's biggest reserve of foreign currency holdings.
But that has declined by $420bn over six months and stands at the lowest level since May 2012.
"While the remaining reserves still represent a substantial war chest, the mathematics around this rapid pace of depletion in recent months is simply unsustainable for any length of time," said Rajiv Biswas, Asia Pacific Chief Economist, IHS Global Insight.
Investor fear
The Chinese authorities fear a rapid devaluation of their currency, as it could destabilise the economy.
Many Chinese businesses hold debt in dollars and managing those debts with a severely weakened yuan could cause problems and some companies to fail.
So China has been trying to engineer an ordered devaluation of the yuan, but that is proving hard to deliver.
Investors have been trying to pull funds out of investments priced in yuan and speculators have been betting on further falls in the currency.
To stabilise the situation China has been selling dollars and buying yuan.
And it has been using other tactics, including curbing currency speculation and ordering offshore banks to retain their reserves of yuan.
Commenting on the decline, veteran economist, George Magnus noted that there is "confusion" over China's foreign currency policy.
"Clearly this can't go on for long," he tweeted, referring to the fall in currency reserves.
The wait for U.S. monthly jobs numbers steadied stock markets on Friday and allowed the dollar to recover after what has so far been its weakest week in more than six years.
Oil prices were up by 0.5 to 1 percent LCOc1, and the mixed performance in Asia spread to European stock markets: London and Paris both gained .FTSE, .FCHI while Frankfurt.GDAXI was marginally lower. Wall Street 1YMc1 NQc1 looked set to open flat.
January was the weakest start to a year for shares since the aftermath of the 2008 financial crisis, and doubts over the U.S. economy - recently one of the few bright spots globally - have grown this week.
Short-term U.S. bond yields US2YT=RR were roughly stable on Friday but have fallen by about a third in the past month and by 10 basis points this week alone, driving the dollar to its weakest performance since late 2009.
A solid non-farm payrolls report, due at 8.30 a.m. ET might restore some optimism. The consensus forecast of economists polled by Reuters was that 190,000 new jobs were created last month.
"There is a general scepticism towards a proper rate hike cycle by the Fed – that's been driving down the dollar (but)there's probably not that much room left for dollar weakness," said Commerzbank currency strategist Thulan Nguyen in Frankfurt. "A better labor market report could bring back some confidence in the rate cycle."
The dollar was flat on the day at 116.805 yen JPY= and 0.1 percent stronger against the euro at $1.1199 EUR=. Against a basket of currencies, it is down 1.3 percent on the week. .DXY
After a weak service-sector business sentiment report on Wednesday and dovish comments from New York Federal Reserve chief William Dudley, U.S money markets now predict no rise in official interest rates this year. Earlier, the Federal Reserve's own forecasting called for four increases.
That reflects growing concern the world is heading back into recession. But it also bolsters expectations for more support for global asset prices from stimulus measures by the world's central banks.
Hong Kong's Hang Seng .HSI rose 0.6 percent and Malaysian .KLSE and Singapore stocks also gained .STI. Tokyo .N225, Shanghai .SSEC and various commodity prices all fell. CMCU3
Strategists said European bond markets looked to be pricing in a softer read from the U.S. payrolls report.
"We doubt that even a strong non-farm payrolls number will have the potential to alter the course," said RBC's chief European macro strategist, Peter Schaffrik.
"More importantly even, particularly for the fixed income market: The Fed seemingly is reacting to the equity market weakness, fearing the feed through into the real economy through a tightening in financial conditions."
(Additional reporting by John Geddie and Jemima Kelly; Editing by Hugh Lawson)
