Gold Prices slip, Improving Economic Outlook Undermining Safe Haven Appeal
Gold prices settled lower on Tuesday after logging gains for two straight sessions as continued across-the-board rally in equity markets, after slight hiccup in the preceding session, lured investors towards riskier assets putting sell-off pressure on the metal while improving economic indicators from both sides of the Atlantic along with stabilizing financial markets in the euro zone is also undermining metal’s safe-haven appeal.
Bullion’s repeated failure to break strong resistance of $1,680 to $1690 an ounce is also holding investors from taking any further bullish bets.
According to Jason Rotman, president at Lido Isle Advisors in Newport Beach, California, the main reason behind gold’s failure to breach the strong resistance of $1,690 an ounce is shrinking balance sheet of the European Central Bank (ECB). Hundreds of banks that took loan from the ECN at the beginning of 2012 are now returning it back to the central bank, a sign of growing stability in the financial markets.
“This is causing confidence to re-appear in the risk market,” Rotman said in a note to investors.
Gold futures for February delivery slipped $2.90 an ounce or 0.2% to settle at $1,673.50 while spot gold was falling 0.1% to trade under $1,672 an ounce.
The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.02% lower at $161.96.
U.S. equities rebounded on Tuesday after logging worst performance thus far in 2013 on Monday. Sentiment was buoyed after data showed that U.S. home prices climbed 8.3% in December from the same period of last year and 0.4% from the preceding month. Later Institute of Supply Management’s (ISM) data on non-manufacturing activities, a gauge on changes of state of affairs in the services sectors, slipped marginally in January from December but was still higher than what economists’ expected.
Meanwhile, positive set of news from the euro zone also helped in supporting a rally in stocks on Tuesday. While companies such as British Petroleum and Arm Holdings handed stronger than expected quarterly results, euro zone’s business activities also pointed towards that troubled economy has bottmed-out.
“It’s no surprise to see gold dropping back as stocks rally again,” said Adrian Ash, head of research at BullionVault in a note to investors, adding that sentiment in bullion has dropped from Decemmber -12months high.
The spotlight will now be the ECB’s policy rate statement, slated to be announced on Thursday together with more economic data from world’s growth engine, China, towards the end of week.
“The bullion market may focus on the upcoming European Central Bank meeting and its corresponding euro reaction, we believe,” said precious metal strategist in a note to investors.
For the time being metal’s is expected to move sideways with mild gains and small losses, taking directions from currencies fluctuations.
On Tuesday a weaker dollar however failed to lift the demand for dollar-dominated commodities. The ICE Dollar Index, a gauge on greenback’s performance against six major traded currencies, slipped to 79.515 on Tuesday from 79.589 in late North American trade on Monday.
On physical demand side, net gold flow from Hong Kong to mainland China soared 47 percent in 2012 to a record high, according to Thomson Reuters.
Platinum Group Metals Continue to Rally
Both Platinum and palladium continued to extend gains for the third straight day on Tuesday, and dealers are expecting further rally as macroeconomic indicators are pointing towards rebound in industrial production which in turn boost the demand for auto-catalysts.
Platinum futures for April delivery gained $9.10 an ounce or 0.5% to close at $1,707.20 while Palladium futures for March delivery edged up $7.65 or 1% to end the day at $765.45 an ounce.
Silver futures for March delivery added 16 cents an ounce or 0.5% to settle at $31.88.