Stock Market Watch

Gold Prices Settle Below $1,700

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Gold prices fell in trading on Wednesday, tracking equity markets, which fell on worries about global economic growth and the ongoing debt crisis in the euro zone.

Michael Matousek, Senior Trader at U.S. Global Investors Inc., told CNBC that it is a typical risk-off trade. Matousek also said that there are still macroeconomic concerns and losses across markets are correlated. He added that a lot of people don’t want to own anything but only in cash and dollars.


On Tuesday, gold prices had risen on buying related to options’ expiration. However, prices once again slipped on Wednesday as there was not follow-through demand for the precious metal from investors.

Technical analysts continue to have a weak outlook on gold as it is trading below its 100-day moving average. However, fundamental factors do point to gains in the medium-term.

On Wednesday, spot gold fell 0.6% to $1,690.20 an ounce. It fell to a session low of $1,679.59 on Wednesday. Meanwhile, gold futures for delivery in December on the Comex division of the New York Mercantile Exchange dropped $6.50 to settle at $1,695.20 an ounce. U.S. Global Investors’ Matousek told CNBC that if gold falls to the $1,600 level, he would not be surprised to see a rebound there because investors with deep pockets will be stepping in.

Robin Bhar, analyst at Credit Agricole, told CNBC that there is some post-options expiry selling coming through. Bhar said that the turmoil still going in the financial markets and the euro dollar swap rates are still fairly high and gold may still be a casualty of that. However, Bhar added that fundamental backdrop for gold remains positive. He said that the bullish factors for gold have not really disappeared, it is more positioning pushing it down.

Meanwhile, recent data has shown that holdings of gold in ETFs backed by the metal have risen more than a million ounces in last week. This is the biggest weekly rise in early August. According to Reuters, total holdings of metal at the major ETFs are up 2 million ounces this month. This is the highest inflow since July’s 2.95 million ounce.

On Wednesday, the SPDR Gold Trust (ETF) (NYSE: GLD) ended 0.29% lower at $164.83, while iShares Gold Trust (ETF) (NYSE: IAU) ended 0.24% lower at $16.54. The Market Vectors ETF Trust (NYSE: GDX) ended 2.72% lower at $55.49 on Wednesday.

Gold prices fell on Wednesday as worries about the euro zone debt crisis sparked a sell-off in global equity markets. On Wednesday, yields on Spanish and Italian, two of the struggling euro zone economies, remained high despite intervention from the European Central Bank (ECB). Investors were also disappointed after Germany, the strongest euro zone economy, saw a weak response to a 10-year bond auction.

German bonds are considered a safe haven investment and therefore the poor reception of the bond auction is a major worry. Some analysts said that the weak response may have been due to the negative real returns on German bonds.

The crisis in the euro zone has boosted demand for German bonds, pushing down yields to exceptionally low level.

Investors were also worried about global economic growth after data from Europe and China painted a gloomy picture of the global economy. On Wednesday, a report showed that manufacturing activity in China fell to a 32-month low in November. The weak manufacturing data from China, the world’s fastest growing major economy, also pushed industrial commodities lower. China is the world’s largest consumer of raw materials and any signs of weakness there is not a good sign for industrial commodities.

On Wednesday, silver prices fell 2.9% to $31.75 an ounce, platinum fell 1.5% to $1,542.49 an ounce and palladium fell 3.4% to $581.22 an ounce.

Economic data released in the U.S. on Wednesday, meanwhile, painted a mixed picture of the U.S. economy.

Suki Cooper, precious metals analyst at Barclays Capital, told CNBC that the economic data in the U.S. had little impact on gold and that the euro zone debt crisis and the deficit stalemate in the U.S. would remain the focus for the market.

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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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