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Gold falls to 10-month low before ECB statement

TradingPub Admin | April 4, 2013

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Want some futures trading education on how the value of the U.S. dollar relative to other currencies can affect commodity prices? Gold futures declined and spot prices fell to a 10 month low on April 4, 2013, as markets responded to anticipation surrounding a statement from the European Central Bank (ECB) related to its interest rate policies, Reuters reports. 

There is also evidence to support a shift in the sentiment of investors, as the global holdings of exchange-traded products (ETPs) backed by the precious metal have plunged this year, according to Bloomberg. 

Falling gold prices
Spot gold plunged to as little as $1,539.74 an ounce, according to Reuters. This was the lowest value for the contract since May 30. By 12:00 GMT, it had pared some of these losses to reach $1,546.90 per ounce. At the time, June gold was valued at $1,546.70 an ounce on the Comex division of the New York Mercantile Exchange. 

Bloomberg reports that the price of the metal has fallen almost 20 percent since reaching record closing levels in August 2011, and such a sharp decline would indicate a bear market. The price of spot gold has fallen 18.5 percent from its record high that was reached in September 2011. The price of the metal increased for twelve straight years as it was sought out as a safe haven against economic turmoil. 

Dollar impact
Some market experts attributed the falling gold prices to a rising value for the dollar relative to other currencies, according to Reuters. 

"Gold is suffering from dollar strength ahead of the ECB, which is unlikely to deliver any surprise again today," VTB Capital analyst Andrey Kryuchenkov stated, according to the news source.

The media outlet reports that the dollar was given more support relative to the euro as markets responded to news that a regional survey of purchasing managers indicated that the economy of the 17-nation euro zone deteriorated further in March. 

ETP holdings
The shifting sentiment of investors is illustrated in the falling holdings of gold-back ETPs, the plunging price of the metal and also surging values for stocks, according to Bloomberg. The price of the metal has plummeted 7.3 percent so far in 2013 through April 3, and data provided by the media outlet indicates that ETPs have cut their holdings of gold by 7.4 percent so far this year. 

The S&P 500 Index and the Dow Jones Industrial Average have risen more than 10 percent so far in 2013. International stocks have also fared well, as the news source reports that the MSCI All-Country World Index of equities has risen 5.3 percent through April 3.

"Equities continue to attract more capital," David Lee, a vice president at New York-based Heraeus Precious Metals Management, told the news source in a telephone interview. "The safe-haven premium for gold also seems to have disappeared with the world not falling apart." 

Economic sentiment
Kryuchenkov highlighted the importance of the confidence that market participants have in the global economy, saying that "at this point it's all about sentiment and if bailout talks in Cyprus, tensions in North Korea and [Bank of Japan] monetary easing have not triggered buying it is difficult that we will see a turnaround in prices any time soon," according to Reuters. 

The media outlet reports that stimulus measures announced by the BOJ including plans to sharply increase the stocks and bonds it holds caused the dollar to rise against the yen. 

Major financial services firm also noted the importance of the actions of Japan's central bank, "further easing from the BOJ should ultimately be positive for gold, but for now seems unable to match the combination of poor sentiment and a firmer dollar." 

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