Stock Market Watch

Gold Prices Slip

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Gold prices dropped on Monday as money managers’ bullish outlook both on gold and silver turned bearish, resulting in sell-off.

Whereas gold prices rebounded spectacularly in the last week, covering large scale losses made in the first week of March, weak Chinese data that showed biggest trade deficit in a decade, resulted in sharp sell-off. Besides, crude oil prices also dropped as market participants feared recession looming over the world economy.


In its note to clients, TD securities wrote “The deficit was four times the recent largest deficit and adds to fears of slowdown, leading the [People’s Bank of China] to weaken the yuan and lifting expectations of further near-term monetary easing as inflation has fallen back significantly”.

While economists had widely anticipated the trade balance to swing to a deficit, following a temporary disruption during the Lunar New Year holiday in January, the size of February’s deficit surprised everyone in the market.

Earlier, bullion was already reeling under pressure as the Fed stopped short of announcing any further monetary stimulus after the U.S. employment data showed improvement in the job market.

Meanwhile, buying sentiments also took beating on Monday after U.S. data showed that net long futures positions held by money managers, including hedge funds, dropped  20 percent, the biggest one-week plunge since August.  Bullish bets in silver futures also felt the heat as its prices tumbled.

While speaking to Reuters, David Meger, director of metals trading at Vision Financial Markets, said “Speculative investment demand has certainly been a positive factor behind the precious metals’ run. Liquidation of it takes away some of the support behind this market”.

He believes some level of volatility will exist in the near short term. “In the near term, I wouldn’t be surprised to see a little further consolidation or sideways movement,” he concluded.

Spot gold lost 0.5 percent on Monday, closing at $1,700.10 an ounce, after Friday’s surprise $40 rally from intraday lows.

U.S. gold futures fell by $11.70, settling at $1,699.80 an ounce, with trading volume in line with its 30-day average.

On Tuesday, the gold market will closely monitor Fed’s stance on further monetary stimulus. After the encouraging U.S. job report, bullion investors will keep a close eye on Fed’s open market meeting which is likely to discuss about further rounds of quantitative easing.

Commenting over the meeting, James Steel, analyst at HSBC said, “The market had maybe overly anticipated QE3 into the gold price, it had factored in too much and it maybe what we saw last week was something of that being extracted back out of the price — diminished expectations of QE3”.

Ronald Leung, Director of Lee Cheong Gold Dealers in Hong Kong, told Reuters that we will see more data coming out of the U.S. and whether or not there will be a QE3. Leung said that if there is no QE3, then there will be disappointed selling again and if the dollar continues to strengthen, then of course gold will be under pressure. He added that there is a little bit of physical buying.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.84% lower at $165.01.

Meanwhile, flows of metal into exchange-traded products, a gauge of longer-term investor demand, rose for a ninth successive week, rising to 71,845 ounces from 70.759 million ounces, thereby making  total net inflows so far this month to almost 320,000 ounces.

In some other precious markets, futures on silver lost 1.8 percent on Monday, settling at $33.54 an ounce.  While platinum gained 0.9 percent on the day, closing at $1,691.99 an ounce, sister metal palladium edged up 0.8 percent, settling at $697.47 an ounce.

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edliston
Post Written By: Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.


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Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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