Blog

Continued Cyprus uncertainty and rising jobless claims push gold futures higher

TradingPub Admin | March 21, 2013

Responsive image

Gold futures rose on March 21, as markets responded to continued uncertainty surrounding the financial state of European nation Cyprus and also rising jobless claims in the U.S.

The speculation surrounding the plans of the Federal Reserve to use quantitative easing to stimulate the nation's economy was also cited as a major contributor to these rising gold prices, according to Reuters. 

Rising gold futures
April gold futures rose to as high as $1,616.50 before paring these gains to trade 0.4 percent higher at $1,613.80 an ounce at 1:40 p.m. on the Comex in New York, according to Bloomberg. The price of the contract has surged 2.6 percent since the start of the month. 

Kitco News reports that April Comex gold finished the day at $1,614.60 an ounce. This contract rose to its highest point in three weeks during the trading session. The price of gold has increased during five of the last six sessions, according to Reuters. 

Falling open interest
Data provided by the Comex reveals that open interest, or the amount of gold futures and options contracts that have not yet been closed, fell 3 percent during the four-day period that ended on March 19, Bloomberg reports.  

Dennis Gartman, an economist and trader, provided an interpretation of this falling figure in his daily Gartman letter, writing that "the decline in open interest reported by the Comex yesterday suggests to us that recent buying has been short- covering rather than new buying," according to the news source. 

Cyprus turmoil
One major factor that has been cited as having an impact on asset markets in the recent past is the financial turmoil that is happening in troubled European nation Cyprus, Reuters reports. The European Central Bank has issued an ultimatum to the country, stating that it must either comply with measures needed to generate funding or risk being denied bailout funding that would push it from the euro zone. 

The ECB had proposed providing Cyprus with 10 billion euros in funding in exchange for the nation adopting a measure that would have levied bank deposits in the country. The country's parliament declined the proposal. 

Market response
Kitco news reports that the existing situation provides support for the gold market, as the uncertainty motivates investors to seek the metal as a safe haven. The lending institutions of the nation are closed until the week starting on March 25.

The flight to safer assets was observed in equities as well, as market participants fled these securities, according to Reuters. The news stemming from Cyprus managed to outweigh strong U.S. data and push American stocks lower. Market analysts stated that the potential implications of Cyprus failing to obtain the funding it needs could cause gold to surge. 

"The Cyprus situation has ignited purchasing of gold from the public who are now becoming concerned that the same can happen where they live," Miguel Perez-Santalla, vice president at BullionVault, told the news source. 

Strong economic data
Data provided by the U.S. Labor Department reveals that the number of people filing initial applications for unemployment benefits rose by 2,000 to reach 336,000 during the week ending March 16, according to Bloomberg. 

"The jobless numbers perked up the market," Phil Streible, a senior commodity broker at R.J. O'Brien & Associates, told the news source in a telephone interview. "Also, Europe remains a big issue." 

Gold's bull market
Reuters reports that while gold has gained for 12 consecutive years, fiscal turmoil in the euro zone has served to bolster this bull market during the last three years. Since the end of 2008, the precious metal has surged 82 percent in value amid speculation that inflation will be prompted by central bank stimulus, according to Bloomberg. 

If you want free, quality futures trading education, you can find it at TradingPub, which gives you the opportunity to interact with some of the top traders and investors in the industry.