Wednesday, May 9, 2012
Gold Not Acting As Safe Haven, Falling With Other Markets In Tuesday's Rout
Equities and commodity markets in general are down sharply as investors worry that new elections may be held next month if no coalition Greek government is formed and that the Mediterranean country could be coming closer to a default on its debt obligations. Only the U.S. dollar and U.S. Treasury markets rose, pushing yields down. Yields on the benchmark U.S. 10-year note are at lowest since February.
June gold prices on the Comex division of the New York Mercantile Exchange were down $35.90, or 2.2%, to $1,603.20 an ounce as of 11:49 a.m. EDT. The market hit a low of $1,595.50 that was the lowest price since Jan. 3.
Gold fell with the rest of the markets as investors sought to raise cash. Dave Meger, director of metals trading with Vision Financial Markets, said a pick-up in the eurozone worries typically triggers a “risk-off” trade in which the first move by participants in a broad range of markets – including gold – is to move the sidelines. A stronger U.S. dollar adds to the weight in gold and other metals.
“When you get this concern, it seems like the initial move is for all asset classes to come under pressure and that generally includes gold,” Meger said.
Bill O’Neill, principal at LOGIC Advisors, said with weakness in the industrial commodities, such as crude oil, copper and silver, gold is coming under pressure. Those markets are responding to likely lower demand in Europe because of recessions and that can hurt gold demand, too.
Further, there’s been very little speculative interest in gold, he said, noting the lack of inflows into the various physically backed exchange-traded funds. Speculative positions in U.S. gold futures and options as measured by the Commodity Futures Trading Commission are just off the lowest levels seen since at least 2009 according to one survey of managed-money positions by the agency. O’Neill also pointed to April’s very low coin sales data from the U.S. Mint.
“It’s clearly a lack of speculator fervor,” O’Neill said.
The only buyers lately of gold have been central banks, he added. “Other than that, we’re not seeing the dealer demand out of London, Germany or Zurich we normally would,” he said. Indian demand has also been lackluster because of a weaker economy and a proposed tax on gold sales. An excise tax was shelved this week, although a higher import duty was left in place.
Aside from the Greek drama, there’s little other headline news to stoke investor’s worries enough to push them into gold. Middle East tensions have died down, so there are not fresh geopolitical worries working in gold’s favor, he said.
Edward Meir, commodities consultant for INTL FCStone, was surprised that gold didn’t revert to safe-haven status, but concurred with Meger that the run-to-the-exits type trade can weigh on gold.
TECHNICAL CHARTS PRESSURE GOLD
June gold futures prices broke key technical chart support at $1,630 an ounce, and that likely uncovered sell stops, which are pre-place sell orders when a market passes a set point.
“Gold has broken out of the channel it has been in since mid-March…You have a lot of individual speculators who were long in the gold market. As that broke out of the channel, the stop-loss selling is probably feeding on itself,” said Michael Gross, futures analyst with OptionSellers.com.
Gold also broke through $1,600, which is considered a support level simply because it’s a round number. O’Neill said near-term support for June gold should come in around $1,580, while Gross put major support for the contract at $1,525. If it does fall this far, that area may well become a buying opportunity, Gross said.
Prices are under pressure right now, but the analysts said that the underlying supports for gold, such ultra-loose monetary policy, haven’t changed and that will eventually keep the market from falling too much further.
O’Neill said there has to be a change in market psychology toward gold to allow it to rally sharply again. One event that might help that would be central-bank action on monetary policy, Meir said. “If the central banks hint at easing,” gold prices will rise, he said, referring to more stimulus to prop up a sagging global economy.
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By Debbie Carlson of Kitco News email@example.com and Allen Sykora of Kitco News; firstname.lastname@example.org