Stock Market Watch

Gold Prices Rebound after Thursday’s Sell-Off

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Gold prices rebounded in trading on Friday following the huge sell-off on Thursday. However, the precious metal is almost flat for the year after posting nearly a 4% drop for the week.

The sell-off on Thursday was sparked by lack of action from the Federal Reserve to stimulate the economy. Following a two-day meeting, the Fed on Wednesday announced that it is extending its Operation Twist program to the end of this year. The Fed sells short-term bonds and buys long-term bonds in Twist program.


Investors were expecting the Fed to extend the Operation Twist program, but they were disappointed that the central bank did not signal at further monetary easing despite lowering its growth forecast for 2012 and 2013.

Gold prices dropped 2.5% on Thursday and briefly crossed into negative territory for the year. Speaking to Reuters, Phillip Streible, Senior Commodities Broker at R.J. O’Brien, said that there is zero inflation out there and with gold being well received as a risk asset, the price is deflated because of the rising dollar.

According to Streible, investors may rebuild gold positions after the latest price pullback, and might rethink the flow of funds into U.S. Treasuries because they have reached a saturation point.

Meanwhile, Nic Brown, analyst at Natixis, told Reuters that since August, September, gold has been trading like any other commodity and the one thing that will support prices this year is the potential for further aggressive monetary stimulus in the U.S., whether it is QE or a new policy. Brown said that while the Fed had chosen not to pursue aggressive stimulus measures, poor economic data from Europe, China and U.S. on Thursday suggested continued pressure for some sort of action.

Spot gold rose 0.2% to $1,568.70 an ounce on Friday, which is just $5 above the closing price for 2011. Spot gold fell 3.5% for the week, the second-biggest weekly drop for the year. Gold futures for delivery in August settled $1.40 higher at $1,566.90 an ounce on Friday.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.42% higher at $152.64, the Market Vectors ETF Trust (NYSE: GDX) ended the day 0.56% lower at $44.58, and the iShares Gold Trust (ETF) (NYSE: IAU) ended the day 0.46% higher at $15.32.

In a research note, HSBC said on Friday that the slide in gold prices may create an attractive entry point for emerging market buyers and long-term investors such as the official sector and pension funds, who may be looking to diversify away from the U.S. dollars and into quality hard assets such as bullion.

According to Fairfax, an investment bank, the recent sell-off in gold could well prove to be excessive if risk aversion rises in the coming months.

Physical demand for gold in major Asian markets, especially India, has been weak. India, which is the world’s largest consumer of gold, saw a $6.2 billion drop in gold imports in April and May, according to the country’s finance secretary. Demand for gold in India has been hurt by a weak rupee. The Indian currency fell to a record low against the dollar this week.

In other precious metals, silver prices rebounded slightly after falling more than 4% on Thursday. At last check, spot silver was trading $0.10 higher at $26.85 an ounce. Silver dropped 6.5% for the week, which is the biggest weekly drop for the metal this year.

Platinum prices fell on Friday. At last check, spot platinum was trading 0.3% lower at $1,426.65 an ounce. Palladium, meanwhile, rose marginally. At last check, spot palladium was up 0.2% to $604.35 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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