Gold spot price depreciates as optimism for global economic growth expands
Chicago (Jan 16) Spot Gold initially rose today to an intraday high at $1,243 an ounce, but subsequently fell to an intraday low of $1,236 due to a rise in equity markets and widening optimism over global economic growth. Right now the price is trading at $1,237 after two days of declining.
MKS SA head of trading Afshin Nabavi says that “gold rallied towards the $1,255 level but it failed to go through it because there is no investor interest, and there may be a push towards the $1,210/$1,200 area”. He says: “I'm sure that with the current strength in the dollar and equities, any kind of macroeconomic data or event, including the FOMC meeting at the end of the month will be watched to see whether there can be a break through the current range.”
The International Monetary Fund (IMF) yesterday said global growth should strengthen this year. However, they see deflation as a "rising risk" as long as economic growth remains beneath policy makers’ optimal levels. A more positive global outlook reduces safe haven buying of gold.
The dollar index rose yesterday after positive US PPI data, putting gold prices under pressure.
Analysts say that the price of gold, also seen as a hedge against inflation, could decline further. So far this year gold has gained around three percent on the back of strong physical demand in China and weak US jobs data, which triggered speculation that the US central bank could slow the pace of tapering its bond buying programme.
INTL FCStone analyst Edward Meir says: “We still see an erosion in gold prices, with the pace perhaps picking up over the next few days given the renewed vitality evident in the US equity markets.”
ANZ analysts say in a note that “against a backdrop of a stronger dollar, rising US 10-year bond yields and the failure of gold to break through a key resistance level of $1,255 in previous sessions, gold is likely to remain under pressure”.
Analysts at Heraeus Metals write that “the need for gold as a ‘safe haven’ is, for some time, now no longer prevailing: besides the positive signs of improvement in the US economy, the European Union-crisis nations are also putting their saving plans into action, and the acute crisis-fear has somewhat abated”. They add that “the prevailing risk-aversion of the past years has recently been replaced by rekindled interest in risk-richer assets classes like equities”.
Traders will be watching closely for signs of an improvement in the US economy when the US reports on the December Consumer Price Index and Unemployment Insurance Initial Claims are released at 13.30 UTC today, and also from the Philadelphia Fed Manufacturing Index which is due out at 15.00 UTC.
Fed chairman Ben Bernanke is scheduled to deliver a speech entitled “The Fed Yesterday, Today, and Tomorrow” at the Brookings Institution, in Washington DC at around 16.10 UTC.
