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Gold Prices Settle Higher

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Gold prices leaped to its two week high on Monday as weak economic indicators continued to weigh on the dollar even as Spain entered into recession with its economy contracting for second successive quarter, pushing up the metal’s appeal as a safe haven instrument.

Spot gold climbed up to $1,667.45 in early Asian hours, its highest since April 13, before easing to $1,665.70 an ounce by 0038 GMT, U.S. gold edged higher 0.1 percent to $1,666.60.


SPDR Gold Trust- the world’s biggest gold-backed exchange-traded fund, reported that its holdings fell 0.47 percent from the previous session to 1,278.32 tons by April 30, the lowest since mid-February.

On Monday, a data by Chicago ISM revealed that Midwest Business Activity slowed in April compared to prior month’s reading even as housing income rose in April. The mix strings of data follow last week’s data on the U.S.  Economy- which showed that GDP growth slowed down in the first quarter, compared to the previous quarter. While analysts were expecting the economy to grow at 2.7%, the first reading stood at 2.2%.

With U.S. economic indicators showing mixed signs, the dollar was quick to pare its earlier gains. A weakening dollar is a good sign for gold prices. Since, most commodities, including gold are traded in dollars; any weakness in the U.S. unit stimulates the demand for the metal, as it becomes less expensive to those traders who deal in other currencies.

Besides, last week’s statement from the Federal Reserve which hinted on possibility of further quantitative easing, if the economy slows down also helped the metal to extend gains.

However, many experts hold opinion that Fed might not resort to QE3 anytime sooner, and gold might not rally as it was initially expected.

Commenting over the possibility of any further monetary easing, Mark Luschini, chief investment strategist at Janney Montgomery Scott, said to the CNBC, “I’m more of the opinion that we’re going to see the Fed pause for some time just to see where the data points run before they feel inclined to come to the rescue, but the market seems to continue to be teased by the hopes that we’re going to see [more QE] so I think we’ll see a floor under equity prices.”

Meanwhile, HSBC has lowered its gold price forecasts for 2012 and 2013 due to sluggish demand from the Indian jewelry sector and lower expectations for further economic stimulus measures in the U.S.

The bank now anticipates gold to average about $1,760 an ounce this year, down from an earlier estimate of $1,850 an ounce, the bank’s precious metals analyst James Steel said in a note to clients.

In a note to investors, Steel wrote, “Our revisions follow a sharp decline in demand for gold from Indian jewelers after a proposed doubling of import levies, and a steep reduction in market expectations of further quantitative easing or other monetary stimulus in the aftermath of the congressional testimony by Fed Chairman Ben Bernanke on February 29.”

Earlier in February, U.S. Federal Reserve Chairman Ben Bernanke provided no hints that fresh monetary stimulus, or quantitative easing, was coming. The less dovish stance and some strings of strong economic indicators damaged sentiment toward gold.

Gold price touched $1,790 an ounce during February. But it lost around $150 an ounce in March and April before the rebound, seen from last week.

However, Steel also said notwithstanding cut in forecasts, HSBC remains bullish on gold’s outlook for the second half of this year.

“In our view, gold prices will be determined largely by the interplay between monetary and fiscal policy, currency movements (particularly EUR/USD levels), geopolitical risks, and changes in gold’s underlying supply/demand balances. We believe the sum of these factors will support bullion prices,” added Steel on bank’s note.

The bank expects the bullion market to remain volatile this year, having a trading range of $1,525 an ounce to $1,950 an ounce.

The SPDR Gold Trust ETF (NYSE: GLD) ended the day 0.31% higher at $161.88.

 

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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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