SPOT MARKET prices for gold bullion hit a six-week low of $1682 an ounce Tuesday lunchtime in London – a fall of 1.8% from last week's close – as stocks, commodities and the Euro continued their recent slide and uncertainty hung over recent European agreements.
Gold futures haven't settled below $US1,700 since January 24, though prices moved below this level in intraday trade twice last week.
At the time, Federal Reserve Chairman Ben Bernanke's testimony to Congress, which hinted that a third round of monetary stimulus wasn't imminent, triggered a violent sell off that saw the contract lose $66 a troy ounce.
Precious metals came under heavy selling pressure on Tuesday… sentiment was dampened further by concerns that Greece might be struggling to reach the necessary participation rate of private bond holders to implement its debt swap
Markets were also spooked on Tuesday by a 0.3-percent drop in GDP in the Euro zone in the first quarter, which followed a downgrade in China's 2012 growth target to 7.5 percent from the longstanding eight percent earlier this week.
Market participants were awaiting the release of US ADP employment data, German factory orders and US oil Inventories ahead of the week's key data event - US non-farm payrolls.
However, Wednesday saw a shift in the downward movement. Market sentiments changes and gold jumped back.
A report stated that under the potential program, “The Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed’s previous efforts to aid the recovery.”
Following the report, April Gold Futures contract traded a modest $16.00 range as physical buying reemerge. After trading as low as $1663.40 during Wednesday’s session gold closed at $1683.90 on Thursday as physical “bargain buying” along with a weaker U.S Dollar helped to fuel the rally.
Reports that Greece’s PSI debt swap deal has been accepted by investors that hold 58% of the eligible bonds were seen as good news for the Euro and therefore pressured the U.S Dollar.
Worries that Greece may not secure a deal with private creditors to cut its debt by the Thursday deadline spurred selling in shares, but pressure on gold was offset by a bounce in the euro and physical off take.
Gold regained some ground on Wednesday as jewelers in Asia snapped up the metal after prices dropped 2 percent in the previous session, while lingering fears about a possible Greek default sent investors scurrying to buy the dollar.
Real Gold Prices have risen sharply since over the last decade. Stocks, in contrast, have gone pretty much nowhere. Because over the last 102 years, and including dividends, the real return on US equities has typically been negative when gold was up, and positive when gold was down.
So owning some of both would seem the sensible, safe course, now weighting one or the other. Such a re-weighting would now be advisable if you think inflation is about to take off.
