Gold Prices Fall - Stock Market Watch

Gold prices touched its lowest level on Thursday, in last two months as concerns over slowing global economy weighed on the metal. On Thursday, data both from the euro-zone and China showed that manufacturing activities continued to contract.

Gold has tumbled $150 after touching almost $1800 an ounce mark in February 29. Fading hopes of further quantitative easing in the U.S, gloomy global economic prospects and rising treasuries yields have put the sell-off pressure on the metal.

Commenting on gold’s strong co-relation with economic indicators, Jeffrey Sica, chief investment officer of SICA Wealth Management with more than $1 billion in assets, told to Reuters, “Gold’s been 100 percent focused on the China slowdown”.

Sica further added that “The sell-off in gold I think is overdone. It’s been tagged to the strength of the dollar and whether there will be further economic stimulus,” and “price volatility will rise even though global economic worries and geopolitical tensions should underpin the metal”.

While spot gold fell by 0.4 percent, settling at $1,642.65 an ounce, U.S. gold futures settled down $7.80 at $1,642.50, with trading volume almost 10 percent below its 30-day average.

Earlier, gold touched a low of $1,627.68, its lowest since Jan 13. The metal retreated most gains made in early January when hopes of new rounds of further monetary stimulus by the Fed were doing the rounds. However, the central bank hasn’t offered any clue on further monetary easing in its latest open market meeting, 2 weeks ago.

Simon Weeks, Head of Precious Metals at Scotia Mocatta, told Reuters that all the people who piled back in January when the Fed went very public on low interest rates have unwound now. Weeks said that there probably is more on the downside, but we have probably seen the worst of the liquidation. He added that there may be another move toward $1,600 an ounce but that is possibly enough for the time being.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.42% lower at $159.54.

Meanwhile, silver also dropped further on Thursday. The metal shed 2.5%, settling at $31.32 an ounce.

Analysts now fear that gold can take further beating as global economic slowdown will fuel the selling pressure. Besides, investors have also exited the bullion market owing to recent spike in benchmark 10-year U.S. Treasury yields. Gold moves in the opposite direction to Treasury bond prices and are seen as a gauge of short-term U.S. interest rates. Analysts warned on Thursday that a close below a $$1,625 an ounce will result in technical breakdown. In its note, analysts at Insignia Consultants wrote, “Keep a close watch … (and) only a daily close above $1,664 will result in bullish trend”.

On physical demand side, world’s two biggest import markets for gold, China and India are struggling. While China’s weak manufacturing data and widening trade deficit has stoke the slowdown concerns and lower demand for gold, the increase on import duties has crippled the demand for gold in India. The Gems and Jewelry industry in India is the biggest buyer of gold in India. Since hike in duties, Bullion and Jewelry Association have been on strike since last weekend, protesting the Government’s decision.

According to James Steel, chief commodity analyst at HSBC, the level of pent-up gold demand in India will be an important factor for the future direction of gold prices.

In some other precious metals markets, Spot platinum ended lower 1 percent, settling at $1,616.49 an ounce, even as spot palladium plunged 4.9 percent to $647.33 thus paring gains made earlier following supply chain disruptions, and better economic prospects. The recent economic optimism also boosted platinum price, reaching its premium over gold earlier in the month. However, the gains vanished this week, with gold standing roughly $30 above platinum.