Gold futures extend decline as economic sentiment improves

TradingPub Admin | February 28, 2013

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The price of gold futures dropped on February 28, as markets caused these contracts to extend their recent declines amid steadily-improving economic sentiment. 

Falling gold futures
Gold futures scheduled for April delivery on the Comex division of the New York Mercantile Exchange were trading $4.00 per ounce lower at $1,591.40 early in the session, according to Kitco News. 

April Comex gold was trading at  $1,588.60 an ounce at 10:46 a.m., according to Bloomberg. The precious metal has plunged 4.4 percent so far in February. This sharp drop has put gold on track to register its fifth consecutive month of declines. The metal has plunged 4.8 percent through February 27. 

Gold has generated substantial visibility as it rose in price from less than $300 per ounce in 2000 to more than $1,900 an ounce in 2011. 

Weak dollar
Kitco News reports that the ICE Dollar Index was down in morning trading, and market experts predicted that the measure had fallen to a market low. Since the value of the dollar index will likely rise in the near future, this information is probably bearish for gold. A higher value for the greenback frequently pushes the yellow metal lower in value. 

Technical analysis reveals that the commodity still has further losses to incur, as it is in a daily bar chart downtrend that is six weeks old, according to the news source. 

Jobless claims
The U.S. Department of Labor released a report during the day, which indicated that the number of jobless claims fell to 344,000 during the week ending February 23, which was 22,000 less than the revised figure of 366,000 for the prior period. 

The four-week moving average of claims, which is considered by many to be a less-volatile indicator of the health of the labor market, was 355,000, 6,750 fewer than the week before. 

Rising GDP
Data provided by the U.S. Commerce Department indicated that the U.S. economy expanded at an annualized rate of 0.1 percent during the final quarter of 2012, whereas the government agency originally indicated it contracted at a rate of 0.1 percent for the period.

This means that the sharp reduction in defense spending that was made by the U.S. federal government did not result in a quarter of falling economic activity. 

"Gold is no longer the preferred asset as people globally are waking up to the fact that the economic conditions are showing some signs of improvement," Phil Streible, a senior commodity broker at R.J. O'Brien & Associates, told Bloomberg in a telephone interview.

European economic strength
Kitco News reports that the gradually improving economic sentiment was displayed in Europe. European Central Bank President Mario Draghi announced on February 28 that he will maintain his efforts to "preserve the integrity" of the common currency. 

While the elections in Italy have yet to produce a victor, the regional fiscal crisis will not be substantially undermined by this uncertainty, the top official of the Organization for Economic Cooperation and Development stated during the day. 

Gold holdings
Another sign of the bearish sentiment that surrounds gold is all the plunging assets held by funds that own gold. 

"Liquidation of physical gold is the hallmark of bearishness," Sterling Smith, a Chicago-based commodity futures specialist at Citigroup Global Markets Inc., told Bloomberg during a telephone interview on February 27. "The improving economic conditions are pushing people to more remunerative assets like equities." 

He predicted that the price of the metal may plunge to as little as $1,400 by the end of third quarter 2013. 

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