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Gold futures drop below $1,600, hitting six-month low

TradingPub Admin | February 15, 2013

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Gold futures fell below $1,600 per ounce on February 15, with market participants pushing the contract to its lowest value in six months amid strong economic data related to the United States. 

April gold futures dropped to as little as $1,596.70 per ounce during the day, which was the lowest value for this contract since August 15, according to Bloomberg. This contract was valued at $1,609.50 an ounce later in the day, MarketWatch reports. 

For the week that ended on February 15, the yellow metal declined 3.4 percent, which was the largest drop for a period of this length since June, according to Bloomberg. Gold has lost a total of 4 percent in 2013. 

Strong economic data
Consumer confidence, as measured in the most recent Thomson Reuters/University of Michigan survey, rose to its highest reading in three months in February. The figure increased to 76.3 this month from 73.8 in January. The February reading exceeded the median forecast of an increase to 74.8 predicted by economists taking part in a Bloomberg survey. 

"We saw a meaningful improvement in overall financial market conditions and home prices, and those are the kind of drivers now for consumer confidence," Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York, who estimated the index would rise to 76, told the news source. "As attitudes continue to improve, we are likely to see that possibly be reflected in improved spending." 

In addition, data provided by a Federal Reserve survey indicated that the manufacturing industry of the New York region rose in February. 

"The economy is doing better and equities are winning, so people don't want gold," Michael Gayed, the chief investment strategist at New York-based Pension Partners LLC, told the media outlet during a telephone interview. "No one wants to invest in safe-haven assets." 

Hedge funds flee gold
One major occurrence that drew substantial visibility was news that hedge funds run by billionaire George Soros and Louis Moore Bacon both divested holdings of exchange-traded products related to gold, according to MarketWatch. 

During the three-month period ending on December 31, 2013, Soros Fund Management LLC slashed its ownership of SPDR Gold Trust by 55 percent, according to a filing with the U.S. Securities and Exchange Commission. By that time, Moore Capital Management LP liquidated all ownership in that fund. 

"Looks like technical selling pressure, along with a 'herd' mentality as prominent funds such as [Soros Fund Management] cut back on gold positions," Jeffrey Wright, managing director at Global Hunter Securities, told the news source. The metal could potentially fall in value and "test the $1,550 level in the next couple of weeks or snap back if perceived value buying returns." 

Fed stimulus
Another variable that could potentially impact the price of gold futures going forward is the efforts of the U.S. Federal Reserve and other central banks to stimulate the economy through monetary easing, according to Bloomberg. 

There is substantial speculation as to when the Fed's use of monetary stimulus will end, with Chuck Butler, the president of St. Louis-based EverBank World Markets, told the news source during a phone interview that "people think the conditions are improving, and the stimulus may disappear." 

However, not everyone is so optimistic, with Federal Reserve Chairman Ben Bernanke stating at the recent Group of 20 meeting that "with unemployment at almost 8 percent, we are still far from the fully healthy and vibrant conditions that we would like to see." 

He added that America "is using domestic policy tools to advance domestic objectives." 

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