Gold Prices Settle Higher, Logs weekly Gains but Outlook Bearish
Gold prices settled higher on Friday tracking across-the-board rally in equity markets; in addition, receiving some support from softer dollar and modest job data; nevertheless, gains were capped following string of some other unexpectedly strong economic data, leading many experts to question gold’s investment appeal at time when riskier assets are performing strongly whilst inflation is also under control.
Improving economic indicators are also fanning fears over the longevity of the Federal Reserve’s economic stimulating measures or QE, which has been the key driving force behind metal’s bull runs in last 12 years.
Gold futures for February delivery gained $8.60 an ounce or 0.5% to settle at $1,670.60 while spot gold was gaining 0.30% to trade above $1,668 an ounce.
The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.16% higher at $161.45.
Earlier on Friday, a data release from the Labor Department showed that non-farm payrolls climbed 157,000 in January, which was more or less consistent with economist’ forecast for 160,000 new jobs additions. However, the unemployment tacked higher to 7.9%, from last month’s 7.8%, propelling demand for inflation-hedge assets such as gold. The Fed has said before that loose monetary policy will persist until the labor market showed significant improvement.
Nonetheless, gold quickly lost its traction after series of U.S. economic data showed marked improvement. The construction spending index, the Institute of Supply Management’s (ISM) factory orders index and revised consumer sentiment index from Reuters/University of Michigan— all turned out better-than-expected, underpinning the fact that the U.S. economy is gaining the momentum.
“Gold popped higher on the surprisingly bad unemployment number, but the internals of the report and other data quickly muted the gains,” wrote Brien Lundin, editor of Gold Newsletter, in a note to clients.
“Gold is being held hostage to the data flow right now, with bad news for the economy being good for gold, as slow or negative growth will portend continued or more aggressive quantitative easing by the Fed,” added Lundin.
In this backdrop, experts are questioning rationale behind investing in poorly performing assets such as gold. Gold’s performance YTD is almost flat while other precious metals (platinum and palladium), along with global equities have rallied thus far in 2013, thanks to improving industrial output, strong earnings reports from most of the S&P 500 companies and stabilizing macroeconomic environment in the euro zone. Besides, the rate of inflation is under control which takes away its appeal as an inflation hedge.
“As an investor, I really do struggle with gold because along with any other commodities, gold does not have a yield, so the actual investment case of holding it is shaky,” said Frances Hudson, global thematic strategist at Standard Life Investments, who helps overseeing a portfolio of 247 billion in assets, according to Thomson Reuters.
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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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