Gold prices recovered a tad on Thursday after falling over 1% in the previous session as some bargain hunting and widespread worries over whether the lawmakers in Washington succeed in reaching a deal with regard to fiscal crisis, kept investors’ interest in the yellow metal intact.
Earlier on Wednesday, gold witnessed its worst session in last four weeks as many factors such as closing of positions and profit booking before the month end following last week’s gains, deflationary concerns, expiration of futures and contracts, weighed on the sentiment, triggering massive sell-off.
However, analysts downplayed the sharp slide by saying that it was one of the corrections and gold’s appeal as a safe-haven instrument is still undamaged in the backdrop of global macroeconomic uncertainty.
James Steel, a metal analyst at HSBC said in a note to investors on Thursday, “We believe that such significant liquidation is unlikely to be repeated, and that gold prices will tend to stabilize above $1,700 an ounce,”
Echoing the same sentiment, Brien Lundin, editor of Gold Newsletter, said in his note to investors that gold’s bounce back was on the cards after yesterday’s slump. “Once longer-term investors could see that there wasn’t going to be follow-through selling, and then they could safely view yesterday’s selloff as a ‘one-hit wonder’ and begin taking advantage of the bargain prices created,” commented Lundin in a note.
“The longer-term fundamentals, with major [quantitative easing] ahead in both the U.S. and Europe, still favor gold “And the technical picture, with a rounding-bottom, ‘cup-and-handle’ formation in gold similar to that of late 2008, argues for a very powerful breakout to the upside at some point,” added Lundin.
U.S. gold futures for February delivery, the most active contract, gained 0.6% or $10.70 an ounce to close at $1,729.50 an ounce while gold futures for December delivery also edged up 0.6% or $10.70 an ounce to end the day at $1,727.20. Spot gold added 0.5% to settle at $1,727.51 an ounce.
Some support also came as investors looked to capitalize from low prices after gold’d sharp fall on Wednesday. “Gold is getting a boost because of the safety element due to the fiscal cliff. With gold’s sell-off yesterday, it reached an attractive level for people to move a small amount of capital into gold,” commented Phillip Streible, senior commodities broker at futures brokerage R.J. O’Brien, according to Reuters.
For the time being, investors are likely to take safe haven bets as prolonged discussions or disagreements among congressional leaders concerning the issue of spending cuts and tax increases will make them more and more risk-averse.
Even though House Speaker John Boehner and President Barack Obama showed some optimism with regard to congressional negotiations on the issue of ‘fiscal cliff’ on Wednesday, Mr. Boehner on Thursday negated his earlier remark by saying that “no substantive progress” was made.
Nevertheless, firmer U.S. dollar has capped gold’s gains, lately. On Thursday, the greenback eased a bit but was strong enough to curtail the demand of dollar priced commodities from traders dealing in currencies other than the U.S. unit.
The ICE Dollar Index, a measure on U.S. unit’s performance against a basket of six major currencies, rose as high as 80.214 from its intra-day low of 80.021 from 80.262 in late North American trade on Wednesday.
Holdings in SPDR Gold Trust (ETF) (NYSE: GLD) Soars.
A data provided by Reuters showed that holdings of SPDR Gold Trust, world’s largest gold backed ETF, increased for second successive day on Wednesday, underpinning investors’ faith on gold’s safe-haven appeal. As of Wednesday, holdings stood at record high levels of 1,347.018 tons.
In some other precious metal markets, silver climbed 1.6% to end at $34.27 an ounce.
In platinum group metals, platinum gained 0.4% to $1,609.49 an ounce while palladium leaped 1.7% to last trade at $684.22 an ounce.
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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.