Gold Prices Settle Below $1,640 an ounce Level
Gold futures slumped to a 6-month low on Thursday as worse than expected GDP data from the euro zone weighed on metal’s inflation-hedge appeal while growing speculation that leaders from G20 nations along with central bankers will reiterate their pledge to support market-driven-exchange mechanism also put pressure on safe haven bets.
Gold futures for April delivery slid $9.60 an ounce or 0.6% to settle at $1,635.50 while spot gold also fell nearly 0.5% to hover around $1,634 an ounce, having earlier hit an intra-day low of $1,633.19 an ounce, the lowest level in last six weeks.
The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.46% lower at $158.32.
A data provided by Thomson Reuters showed that the trading volume in gold futures was in-line with its 250-day-moving-average.
The euro zone economy contracted more than expected in the fourth quarter. An economic data release on Thursday showed that the GDP in the 17-nation monetary union shrunk by 0.6% while economists were expecting a decline of 0.4% in the fourth quarter. In the same period, euro zone’s two largest economies, France and Germany also recorded unexpectedly higher contraction in the economic activities. The news immediately weighed on the sentiment, triggering sell off of inflation hedge assets such as gold. Year-to-date bullion is down 2.5%.
Disappointing economic data also put pressure on the euro while the dollar edged up against rival currencies, putting further pressure on dollar-dominated commodities.
The ICE Dollar Index, a gauge on U.S. unit’s performance against a basket of six major traded currencies, rose to 80.489 on Thursday from 80.082 in late North American trade on Wednesday.
The weakness in physical side demand for the yellow metal is also putting pressure. Since mainland China is still shut, on account of weeklong Chinese Lunar New Year celebrations, the demand is subdued in Asia. Although small buying interest from jewelers was seen on Thursday after Hong Kong resumed trading activities, the demand in some other Asian markets such as Indonesia and Thailand remained lackluster. One Singapore dealer said to Thomson Reuters on Thursday that gold need to drop even further to attract bargain hunters.
Meanwhile all eyes will remain on the G20 Summit, scheduled to be held this weekend. Although G7 leaders earlier during the week signaled that they were in favor of market-driven exchange rate mechanism, denouncing the ongoing currency devaluations—global investors were confused as the statement did not mention anything on Japanese yen devaluation.
As long as nations keep indulging in ‘currency war’ (mainly euro zone and Japan), gold will benefit as fear over currencies debasement will boost the demand for safe-haven bets. On the other hand, if global leaders from G20 nations and finance ministers categorically push for a market driven exchange rate mechanism then it could put pressure on gold.
Perhaps this was one the reasons why gold came under pressure on Thursday. According to Bloomberg report, finance minister and central bankers from G20 nations said in a draft statement that nations will repeat a pledge to desist from currency devaluation.
Global Gold Demand Falls in 2012: World Gold Council
A research report released on Thursday showed that global demand for gold fell for the first time in last three years in 2012 as demand from two biggest customers, India and China, remained lackluster due to economic slowdown while demand for U.S. and European gold and bar investment also dried up. In all, demand in 2012 fell 4% to 4,405 tons. However, on the brighter side, the demand from central banks around the world remained strong. Central banks purchased 534.6 tons of gold last year, the most since 1964.
In some other precious metal markets, silver futures for March delivery tumbled 52 cents, or 1.7%, to settle at $30.35 an ounce,
Platinum futures for April delivery lost $18.80, or 1.1%, to end at $1,710.90 an ounce while palladium futures for March delivery edged down $8, or 1%, to close at $764.05 an ounce.