A perfect example of how gold futures can be impacted by changes in investor sentiment is the decline that the contracts made on February 8, as markets responded to encouraging information regarding the U.S. trade deficit and a stronger value for the U.S. dollar.
Falling gold futures
Gold futures scheduled for April delivery on the Comex division of the New York Mercantile Exchange settled 0.3 percent lower at $1,666.90 an ounce, according to MarketWatch. January 31 was the last time this contract finished trading below $1,670 per ounce.
"Gold has major resistance at the $1,690 level, and has not been able to stay above that level recently," Jason Rotman, president at Newport Beach, California-based Lido Isle Advisors, told the news source. "With the S&P 500 SPX +0.57 [percent] having an easy time staying above 1,500, we believe investors will continue to move into equities and away from gold and bonds."
The Wall Street Journal reports that the metal garnered less trading than usual during the day. Market experts expect that the Chinese new year, along with other holidays, will result in fewer transactions happening in the physical market.
China is the second-largest consumer of the metal in the world, and Kitco Metals analyst Jim Wyckoff wrote in a note that the temporarily halted trading in the Asian nation could reduce the worldwide demand for the commodity, according to the news source.
MarketWatch reports that the greenback appreciated versus the euro during the day, and the ICE Dollar Index gained in value, which helped to push commodities contracts denominated in the currency lower, MarketWatch reports.
Sterling Smith, who works as a futures specialist for Commodity Research, Citibank Institutional Client Group, stated that various factors could serve to push the greenback higher in the near future, according to Kitco News.
He specified that by not changing its interest rates, the European Central Bank may be pushing the euro lower relative to the dollar. The Japanese government may make an effort to bolster the nation's exports and therefore economy by devaluing the yen.
"I think we could see some further dollar strength next week," Smith stated, according to the news source. "As bad as we are, we're the least biggest offender thus far. Germany's economy depends a lot on exports and a strong euro could damage it."
Falling trade deficit
An example of how gold prices frequently move lower when markets receive encouraging economic information is the data released by the Commerce Department indicating that the U.S. trade deficit fell by nearly 21 percent in December, MarketWatch reports. The monthly figure was the lowest in two years.
"Trade deficit numbers shrunk for the U.S., indicating positive signs for the U.S. economy," which resulted in a gain in equities and downward movement in gold, Rotman told the news source. "We expect gold's next $30 dollar move to be to the downside."
Chinese economic strength
Many market experts credited strong Chinese economic data with the downward movement in gold, and Reuters reports that the Asian nation experienced sharply higher imports and exports in January.
"Our fundamental view is that gold is rolled over, meaning that it doesn't have too much upside because of improving appetite for riskier assets, and will probably continue trading around current levels," SP Angel analyst Carole Ferguson told the news source.
She added that "although people are getting a little bit concerned about what's happening in Spain and Italy, generally we sense that the U.S. economy is recovering (and) China is in better shape, which reduces demand for safe havens."
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