Gold Prices Edge Lower, Fed’s Minutes Eyed

Gold prices edged lower on Tuesday to settle just above $1,600 an ounce level as multi-year high S&P index, unexpectedly strong business sentiment data from the European growth engine, Germany, along with dousing concerns over competitive currencies devaluations— weighed on metal’s safe haven appeal.

On Tuesday, U.S. gold futures for April delivery fell $5.30 an ounce to close at $1,604.20 while spot gold edged down more than 0.30% to settle under $1,605 an ounce.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.26% lower at $155.35.

With equities soaring to multi-year highs (the S&P 500 Index climbed to a five year high on Tuesday) in the backdrop of improving macroeconomic environment across the world coupled with rising M&A activities in the recent past, global investors are finding hardly any incentive to put money on safe haven bets  when riskier assets are performing strongly year-to-date.

Germany’s ZEW Index, a gauge on business sentiment climbed to 48.2 in February, way above economists’ forecast of 35, underpinning the fact that euro zone economy is now rebounding after stagnating for almost 3 years due to debt and banking crisis. All major benchmark indexes rallied in Europe on Tuesday.

“Investors continue to buy racier assets such [as] equities rather than gold and silver,” wrote Fawad Razaqzada, technical analyst at GFT Markets, in a note to clients.

Earlier in January the European Central bank (ECB) had said that hundreds of banks that borrowed money at the height of the banking crisis in the euro zone were lining up to return money, a sign of stabilizing financial markets in the region while abatement of the ‘debt crisis’ has also doused fears over the breakup of the euro zone.

Moreover, fading concerns over ‘currency war’ following the G20 Summit where finance ministers and central bankers backed market-driven exchange rate mechanism and played down the recent uproar over Japanese yen devaluation also– put pressure on metal’s currency hedge appeal.

“You are seeing gold become an asset that investors no longer need to jump in on because the fact that these currencies are not going any time soon. So, the currency hedge is reduced markedly,” said Adam Sarhan, chief executive of Sarhan Capital in a note to investors.

Fearing possible competitive currencies devaluations after the Japanese yen plunged sharply against rival currencies as a result of unprecedented monetary easing; gold investors mainly remained in sidelines waiting to get a clear picture from G20 leaders.

In the backdrop, gold investment appeal is fading and it seems that the 12 straight years of bull runs will finally end in 2013. Year-to-date the metal is down over 3%.

Now all eyes will be on the Federal Reserve’s latest minutes, scheduled to be released on Wednesday.  The minutes are likely to throw more light on the Fed’s views on ongoing monetary easing measures. The Fed’s Quantitative easing has been the key driving force behind gold’s strong performance in last two years.

In some other precious metal markets, silver futures for March delivery slumped 1.4% or 43 cents to end at $29.42 an ounce.

Palladium for March delivery gained $11, or 1.5%, to close at $764.15 an ounce, while April platinum climbed $19.80, or 1.2%, to settle at $1,697.50 an ounce.

PGM prices have been rallying latelyas the outlook on global industrial production is improving. Both platinum and palladium are used as auto-catalysts.

In a weekly research report released on Tuesday, analysts at ETF Securities wrote, “The fundamentals for platinum-group metals “remain strong: mine disruptions in South Africa and Zimbabwe and dwindling state stockpiles in Russia have constrained supply while robust car sales in the U.S. and China are increasing demand for the metals.”

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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.