Blog

Gold futures fall to new six-month low as strong economic data bolsters sentiment

TradingPub Admin | February 20, 2013

Responsive image

Gold futures responded to economic sentiment when they declined to a new six-month low on February 20, as investors pushed these contracts down as confidence surrounding the global economy increased.

Falling gold futures
April gold futures had a rough day, falling to as little as $1,588 an ounce, their lowest price since August 2, on the Comex division of the New York Mercantile Exchange, according to Bloomberg. These futures recovered slightly to $1,592.60 by 7:50 a.m. on the Comex. Global market participants traded 53 percent more of these contracts than they usually did at this point in the morning during the last 100 days. 

Gold futures fell below $1,600 per ounce on Friday, February 15, driving these contracts to their lowest in six months. 

FOMC minutes anticipation
Global market participants were anticipating the release of the minutes from the latest meeting of the Federal Open Market Committee, which was held on January 29 and 30. Kitco News reports that global investors have been following these minutes since they provide insight into the future monetary easing plans of the U.S. Federal Reserve. 

Late last year, Federal Reserve Chairman Ben Bernanke announced that the U.S. central bank would step up its purchase of debt-based assets and buy $85 billion worth of bonds every month until substantial progress had been made in the labor market. 

The central bank announced on January 30 that this current plan to purchase $85 billion in debt-based instruments per month would not be changed, according to Bloomberg.

There was more division between the voting members of the FOMC during the meeting that happened on December 11 and 12, in which some of these key lawmakers expressed a desire to cease these monetary easing efforts at the end of 2013, and others wanted to stop buying bonds midway through the year, the media outlet reports. 

According to Kitco News, the minutes of meetings such as these have been crucial to investor sentiment and the resulting movements in assets like gold. The existing Fed policies of robust monetary easing will only last for so long, at least according to the recent increases that have been experienced in bond yields. 

Economic improvement
Various economic developments have combined to bolster the sentiment of investors, and the media outlet reports that recent news being released from the European Union indicates that the region is making progress on overcoming its sovereign debt challenges. 

The optimistic sentiment of market participants was illustrated by a recent Bloomberg survey, in which economists said that a Labor Department report scheduled for February 21 will show that increases in the price level have been moderate. 

"Bullion's safe-haven properties as well as its traditional use in inflation hedges are irrelevant at this point," Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote in a report, according to a news source. "The market's attention is set to turn to the Federal Open Market Committee's January minutes." 

Other assets
One asset that is frequently tied to price movements in gold is the greenback. Kitco News reports that the ICE Dollar Index was lingering close to its highest point in six weeks in early trade on February 20. Technical data indicates that this safe-haven currency may have recently hit a bottom and could benefit from momentum that could push the dollar higher. 

The media outlet noted that global equities have been gaining in value in recent weeks, which points to the rising sentiment of investors. These market participants generally take money out of safe-haven assets such as gold when they put funds into riskier investments like stocks. 

If you want access to free, quality futures trading education, TradingPub gives you the opportunity to interact with some of the top traders and investors in the industry.