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Gold Prices Regain Some Strength after Wednesday’s Sell-Off

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Gold prices recovered on Thursday, after losing almost two percent a day before as the upbeat U.S. economic data pushed up the dollar and other riskier assets.  Notwithstanding gains on Thursday, this week has seen the worst performance from the gold since preceding three months.

Spot gold climbed up 0.96 percent to $1,658.01 an ounce, having dropped almost 4 percent so far this week after the Federal Reserve issued a more upbeat outlook for the U.S. economy, dousing expectations for further measures like quantitative easing.


U.S. April gold futures for April delivery edged up $16.60 at $1,659.50 an ounce, with volume above its 30-day average but sharply below the pace in the earlier session.

Meanwhile, gold investors seems to have stuck with gold for now, pushing holdings of the metal in the world’s largest exchange-traded products (ETPs) to record highs this week, even as  in Asia’s biggest physical gold markets, the drop in price encouraged a strong recovery in demand, mainly in top physical gold market like India.

Another factor which has pulled down the bullion is the rising U.S treasury yields. As interest rates rise, the demand for dollars also rise, which in turn pushes up the dollar against other major traded currencies.

Commenting over gold’s likely performance in short to medium term, William Adams, head of research at metals-data provider FastMarkets, said that “there is a risk of further weakness, but equally we would not be surprised if bargain hunters start to provide support and if prices start to move higher, then follow-through buying may well follow.”

Suki Cooper, an analyst at Barclays Capital, told Reuters, “Given that we’ve seen the probability of further quantitative easing reduced, profit-taking has weighed”.

She also added that “Gold is now looking to two factors, the physical market and the longer term sticky ETP (Exchange Traded Product) demand … ETP holdings have remained pretty stable”.

Gold has plunged around 8 percent since late February as funds have exited the bullion market in drove. Funds that were earlier bullish on gold were worried over the fact that the Fed had no intention to embark on another round of major asset purchasing program to keep interest rates and borrowing costs low.

Andrey Kryuchenkov, analyst at VTB Capital, told Reuters that this has been another excuse for people who have been sitting on long positions from early January and even going back to early autumn, when there was speculation over when we would have QE and abundant liquidity. Kryuchenkov noted that we will negative real interest rates through 2014, and as a result he feels gold is well supported. He added that the negative correlation of gold to the U.S. dollar would pose stiff headwind to the bullion price.

On the other hand, the greenback has been gaining strength. On Thursday, The dollar hit to a 11-month high against the yen and a one-month high against the euro following growing optimism on the U.S. economic recovery and subsequent rises in U.S. bond yield.

A stronger dollar hurts dollar-dominated commodities such as gold, as well as some other industrial metals like copper, which was also weighed by concerns over slowing demand from China, the world’s largest consumer of the metal.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.95% higher at $161.08.

In some other precious metals markets, futures for April platinum climbed up $8.60, or 0.5%, to settle at $1,683.90 an ounce. Silver for May delivery gained 55 cents, or 1.7%, to $32.73 an ounce.

May copper added up 5 cents, or 1.3%, to settle at $3.90 a pound.

Palladium also strengthened, with the June contract gaining $12.45, or 1.8%, closing at $709.90 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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