If you want some free trading education involving how gold can be impacted by key variables such as speculation surrounding monetary easing and the value of the U.S. dollar, the behavior of the precious metal on May 28 provides a valuable lesson.
Gold prices decline
The commodity did not have a strong start to the day. At 06:43 GMT, spot gold was 0.25 percent lower at $1,390.81 an ounce, according to Reuters. This happened as the U.S. dollar moved higher relative to other currencies.
The precious metal made this gain after surging 2 percent during the week before, which ended on May 24, as demand for gold was bolstered by market participants responding to data revealing that the manufacturing sectors in the U.S. and China had decelerated, the media outlet reports.
By 1:41 p.m., August gold settled down 0.6 percent at $1,379.70 per ounce on the Comex Division of the New York Mercantile Exchange, Bloomberg News reports. Data provided by Bloomberg reveals that during this time, the volume of trading was more than twice that of the 100-day average.
While the precious metal made headlines by increasing in value for 12 consecutive years, it reversed direction and fell into a bear market in April, after it dropped 20 percent from the recent high that it reached late in 2011.
Federal Reserve stimulus speculation
Significant visibility has been generated by the quantitative easing measures of the Federal Reserve and the impact that these policies could potentially have on the precious metal.
In the last several years, the financial institution has pushed its portfolio of securities past $3 trillion, in a very strong effort that has been aimed at increasing the money supply and therefore stimulating the economy. Federal Reserve Chairman Ben Bernanke has indicated that the existing purchases of financial instruments and the policy of keeping interest rates at very low levels will persist until the job market has improved substantially.
On May 22, he specified that if the broader economy improves enough, the existing debt purchase program, which involves buying $85 billion of financial instruments every month, might be reduced in scope, according to Bloomberg News.
These robust quantitative easing measures have been harnessed by central banks worldwide, and the widespread asset purchases have helped to stoke concerns about inflation. These worries that the price level will suddenly increase have helped to motivate market participants to flock to gold, since many of them believe that it would not lose value in the event that global currencies suffer a strong drop in purchasing power.
Falling ETF holdings
Another sign of the worsening situation for the precious metal is the holdings of gold-backed exchange-traded funds, as the amount of the commodity held by SPDR Gold Trust, the largest fund of this type, recently fell to its lowest since February 2009, Reuters reports. On May 24, the ETF held 1,016.16 tons, compared to 1,350.50 at the start of this year.
Bloomberg News reports that in May, consumer confidence surged, with a measure created by a New York-based private research group increasing to its highest in more than five years. In addition to this positive data, a government report indicated that home prices surged by the largest amount in seven years during the 12 month period through March.
"Good U.S. data continues to weigh on gold," Thomas Capalbo, who works as a broker at New York-based Newedge Group, told the media outlet during a telephone interview. "Also, the withdrawals from ETFs show that the momentum buyers remain bearish."
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