Gold’s Fortunes Diminish As Equities Turn Around
A recovery in U.S. equity markets and positive economic data Tuesday morning is taking some momentum away from gold prices; however, some analysts still see potential for the yellow metal as uncertainty remains in the marketplace.
Gold prices have been under consistent pressure since most the Asian trading session. Overnight, in an effort to stabilize its domestic equities market, the People’s Bank of China pumped much needed liquidity into its fragile financial system, cut interest rates and reduced reserves requirements for Chinese banks.
These moves boosted confidence in global markets as North American equity markets opened in positive territory, clawing back from Monday’s losses. The S&P 500 gained 30 points, or 1.61%, at the open, while the Dow Jones Industrial Average jumped higher by 213 points, or 1.4%.
As of 11:12 a.m. EDT, the S&P was up 65 points, or 3.52%, at 1,937; at the same time, the Dow Jones was up 375 points, or 2.36%, to 16,246.
This positive market sentiment has dragged gold lower. Following the U.S. economic data, December gold futures hit a session low of $1,134 an ounce and prices continue to hover only slightly higher, trading at $1,135 an ounce, down 1.61% on the day.
George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures said, in a phone interview with Kitco News that right now gold is off the radar as all the investors are watching equity markets and China.
He added that in the short-term gold prices could continue to weaken as the inflation outlook – resulting from lower oil and copper prices – remains weak. However, he noted that market uncertainty should keep the market from collapsing to new long-term lows.
“The problems in financial markets won’t be repaired in one day,” he said. “Ultimately I continue to see more long-term potential for gold.”
Sean Lusk, director commercial hedging division at Walsh Trading, is also expecting to see lower prices now that equity markets have turned around. He added that although prices hit a new six-month high Monday, many are disappointed that prices didn’t move higher as many were expecting to see prices push towards the 200-day moving average around $1,189 an ounce.
“There were some reasons why gold didn’t perform better; some funds probably had to cover their recent profitable long positions to raise capital for margin calls,” he said.
Lusk added that after a two-week rally, it is not surprising to see prices pull back on some profit taking. Moving forward, the key, will be to see if there is any buying on the dips.
The target Lusk is watching in the near-term is last year’s lows at $1,132.
“It is hard to get excited about gold until we push towards the 200-day moving average,” he said. “There is a downward sloping trend line that comes in at just below $1,200 that you need to take out, but right now we are sitting well below that.”
Although gold prices are under pressure, the market has managed to hold initial support. In their daily research note, market strategists at iiTrader.com said that they see initial support at $1,133.1 and a close below that level will leave the bulls in control of the market.
“The bulls look to maintain a close above 1148.5 in order to keep an upper hand,” they said.