Gold futures fall as budget hopes rally equities
SAN FRANCISCO (Oct 10) Gold futures dropped on Thursday with signs of a thaw in Washington’s budget standoff helping to fuel a rally in U.S. equities and draw investors away from the precious metal.
Gold for December delivery fell $7.50, or 0.6%, to $1,299.70 an ounce on the New York Mercantile Exchange, with prices testing the $1,300 level.
“There is a general ‘risk-on’ attitude in the market place” as there is some hope that Democrats and Republicans in the U.S. Congress can very soon agree on a budget/debt-ceiling plan that would reopen the partially closed government and raise its borrowing limit, said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.
The standoff thaw is likely to pressure gold and other assets viewed as safety plays. Top House Republicans are expected to meet with President Barack Obama on Thursday. U.S. stocks rallied, with the Dow Jones Industrial Average up more than 1%.
The dollar also strengthened against most other currencies, with the dollar index trading at 80.493, up from 80.378 late Wednesday.
But “for what is a domestic spat or a
game of brinkmanship, the possible default and shutdown in the U.S. will unquestionably undermine confidence in the U.S. dollar longer term as [the international community looks] on in disbelief,” said Ross Norman, chief executive officer at Sharps Pixley.
“Reserve currencies simply should not be held hostage to domestic politics and the theme of gold buying by emerging nation central banks looks assured,” he said.
Meanwhile, the U.S. Labor Department said initial weekly jobless claims jumped to a six-month high of 374,000, worse than forecasts for 312,000. The jump was attributed to application-processing snafus in California and government shutdown-related layoffs. Gold turned slightly positive after the claims data, but then dipped back into negative territory.
For gold, “the bearish tone continues to predominate despite some fairly epic concerns over the U.S. economy and possible contagion into the global markets,” said Norman, in emailed comments.
“The move lower is counterintuitive,” he said . “It is clear that not only are prices under pressure but volumes on Comex are also falling with the lowest turnover this year.”
“The data vacuum is contributing to the uncertainty but rather than taking a position, traders are simply watching as events unfold,” said Norman.
In a video report out Wednesday, Morgan Stanley reiterated a cautious outlook on gold that it presented in its “Global Metals Playbook” report out Monday. “Even though the [Federal Reserve’s] deferral of tapering has limited downside to gold in the near term, we also recommend staying away from gold at this point in the cycle,” said Joel Crane, a Morgan Stanley analyst, in the video.
