Gold Prices End Flat Amid Rally in U.S. Stocks

Gold prices settled almost flat on Wednesday as record high valuations of Wall Street stocks along with rally in some other precious metals market in the wake of significantly improving global macroeconomic environment is drying up demand for safe haven bets, which in turn is capping gold’s gains.

However, news that South Korea’s central bank increased its gold holdings last month and expectations that recent exodus of investors from gold-backed ETFs will soon come to an end supported prices in spite of strength in the U.S. dollar against most widely traded currencies.

U.S. stocks continued to rally on Wednesday, with Dow Jones extending its all-time-high levels after Moody’s Analytics and ADP data showed that the private sector added more-than-expected jobs in February. The data showed 198,000 new additions against economists’ consensus forecast of 169,000 additions.

In a note to investors, Phillip Streible, senior commodities broker at futures brokerage RJ O’Brien wrote, “You are going to get less people interested in defensive plays like the precious metals. People are more into buying equities in a risk-on type environment.”

U.S. gold futures ended flat at $1,574.90 an ounce for April delivery while spot gold was almost flat at $1,578 an ounce.

Thus far in the current year bullion has slumped almost 6% and down nearly 18% from its historic high of $1,920.30 an ounce, touched in September 2011 when euro zone debt crisis and macroeconomic uncertainty in the U.S. as lawmakers wrangled over debt ceiling limit, boosted metal’s safe haven appeal.

Although the Federal Reserve’s $85 billion monthly bond purchase program is on, lack of inflationary pressure is weighing on metal’s inflation-hedge appeal as well.

On Wednesday however metals found some support as multi-high years high valuations of U.S. stocks (all-time-high in case of Dow Jones Index), fanned fears that current rally might to turn in to a stock market bubble, prompting investors to seek safety in gold, said traders according to Reuters.

South Korea’s Central Bank Increases Holdings in Gold

South Korea’s central bank announced on Wednesday that it purchased 20 tons of gold in February 2013. February marked the fifth month in last two years when South Korea has purchased gold. Country’s total holding is now estimated at 104.4 tons.

Nonetheless, investors’ mass exit from gold-backed exchange traded funds is keeping sentiment on the yellow metal subdued, notwithstanding some renewed buying interest in the physical metal from Asia, especially China.

Holdings of SPDR Gold Trust (ETF) (NYSE: GLD), world’s largest gold-backed exchange traded fund, saw its holdings fall for the record 11^th straight session on Wednesday to a sixteen month low level of 1,244.855 tons, showed a data provided by Reuters.

“South Korea’s gold purchases – and probably those of other central banks – were only able to offset February’s outflows from gold ETFs in part. The outflows are continuing up to the current edge, yesterday seeing further outflows of 8.5 tonnes,” wrote Commerzbank in its note to investors.

“For the first time since mid-September, holdings of gold ETFs have fallen to below 2,500 tonnes again. For as long as this trend persists, the gold price is hardly likely to achieve any significant recovery,” added Commerzbank.

In some other precious metal markets, silver futures for May delivery added  20 cents, or 0.7%, to close at $28.80 an ounce.

April platinum futures fell $5.90, or 0.4%, to end at $1,579.80 an ounce while June palladium edged up  $5.45, or 0.7%, to settle at $740.05 an ounce.

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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.