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Gold futures drop amid debt ceiling extension and EU data

TradingPub Admin | January 23, 2013

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The relationship between market sentiment and gold futures was proven once again on January 23, as contracts dropped in value as investors responded to news that Washington lawmakers approved an extension for the nation's debt ceiling and euro zone consumer sentiment reportedly rose in January. 

Gold Falls  

February gold had a rough day, falling $6.50 per ounce or 0.4 percent to settle at $1,686.70 an ounce on the Comex division of the New York Mercantile Exchange, according to MarketWatch. One major factor that was cited for this decline in the value of the precious metal was the short-term debt limit extension that was approved by the House of Representatives. 

Debt Limit Extension  

The chamber bought the nation's lawmakers some more time by giving them until May 19 to resolve the debt ceiling dilemma, MarketWatch reports. Senate Majority Leader Harry Reid stated on January 23 that his chamber will approve the measure in short order, and the Obama administration has already stated that it will sign the agreement into law. 

To illustrate the impact of the news, gold prices closed at their highest level in more than one month on the previous day, increasing 0.4 percent to reach $1,693.20 an ounce, according to MarketWatch. "Among the most forex-sensitive commodities, it looked like gold held up better than oil in the immediate aftermath of the debt ceiling non-event today," Richard Hastings, a macro strategist at Global Hunter Securities, told the news source. "Gold is still consolidating near the $1,685 level." 

Another factor that could have affected the decline in the precious metal was the price of the greenback, which was higher before the news of the debt limit extension was released, according to the media outlet. The ICE dollar index, which compares the greenback to the currencies of six major trading partners, was valued at 79.939, compared to 79.892 in late North American trading on Tuesday. 

Rising Sentiment   

Reuters reports that the sentiment of investors is changing, and that a gradually improving economy could easily sap demand for gold. This picture of rising morale was supported by statements made by the European Commission that the sentiment of euro zone consumers is on the rise. In addition, polls conducted by the media outlet predicted that the global economy will experience more robust expansion in 2013 as it benefits from accelerating Asian growth. 

"I don't think there is any reason for investors to own gold any more as the economy is turning around," COMEX gold options floor trader Jonathan Jossen told the news source. 

Even though the price of the precious metal declined on January 23, gold was on track to enjoy its fourth consecutive weekly increase. If the commodity does finish higher, it will enjoy its longest rally since September. 

'Lackluster Interest' 

Tobias Merath, global head of commodity research at Credit Suisse, stated that "we can see rather lackluster interest for gold right now, with investors withdrawing some money from the gold market" as the global economy gradually improves. 

The struggles of the metal has been illustrated in the holdings of gold exchange traded funds and and challenges that the commodity has had this month in rising above its 50-day average, according to the news source. Gold was stuck below $1,700 per ounce at the start of January, and has had a hard time breaking past resistance that exists at the 50-day average of $1,690. This inability has held down gains for the most recent five trading sessions. 

If you want to trade gold futures, learning more about the contracts is imperative. Nobody knows what the underlying basis is for the price of the metal. Some consider the commodity to be a fear hedge. 

To obtain additional futures trading education, visit TradingPub, which gives you the opportunity to interact with some of the top traders and investors in the industry.