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Gold futures move lower amid strong dollar and positive sentiment

TradingPub Admin | May 14, 2013

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A perfect example of futures trading education that you can potentially use in your investing activities involves how gold contracts can respond to key variables, such as the value of the U.S. dollar and also economic sentiment.

Daily decline
June gold prices settled down 0.7 percent at $1,424.50 an ounce on the Comex division of the New York Mercantile Exchange, according to MarketWatch. This resulted in the precious metal dropping to its lowest price since April 24. Spot gold was also trading lower, falling $4.80 per ounce to $1,426.50, Kitco News reports.

Extended losses
The declines that the precious metal made on May 14 extended the losses generated on the previous day, when gold fell 0.2 percent amid appreciation in the U.S. dollar and a Federal Reserve report indicating that the central bank is getting ready to reel in the quantitative easing that has been happening for several years, according to MarketWatch.

This comes after the commodity fell into a bear market in April, according to the common definition of an asset losing 20 percent of its value. Amid these sharp losses, many market experts have declared that their faith in the precious metal has been shaken, and that it is no longer a safe-haven asset.

Dollar impact
On May 14, the greenback extended the gains it made on the day before and contributed to gold declining for the second trading session, as the ICE dollar index continued to increase in value, rising to 83.547 from its reading of 83.276 late in the previous day, the media outlet reports.

A stronger dollar tends to push down the price of commodities. Since the contracts for these raw materials are frequently denominated in the greenback, any rise in the value of the dollar makes these contracts more expensive for market participants using foreign currencies to purchase. Alternatively, the opposite is true, as a falling dollar causes commodities prices to rise.

Economic data
One factor that served to bolster the sentiment of market participants was strong economic data, as industrial production increased by 1 percent in the European Union during the month of March, and the sentiment surrounding the fiscal challenges of euro zone nations was brightened somewhat as a result of strong demand for debt-based securities sold at a recent auction of Spanish government bonds, according to the news source.

Physical gold market
One variable that could serve to provide gold prices with support in the near future is the strong health of the physical market for the precious metal, MarketWatch reports. Much of the demand for items such as gold jewelry is coming from Asia, and Gene Arensberg, editor of the Got Gold Report, told the news source that investors there "are scooping up as much or more of the gold recently returned to the market" from entities that are letting the metal go.

Steven Evanson, chief executive officer at Evanson Asset Management, emphasized the robust demand for these items, telling the media outlet that "the physical and true gold market, not paper contract market, is on target for the best year ever and shortages and premiums in the physical market are the norm at this time."

James Steel, chief precious metal analyst at HSBC, added that demand in India should remain strong as a result of the current wedding season, according to Reuters. Similar sentiment has been voiced by other market experts, who have identified the Hindu festival of Akshaya Tritiya as providing support to gold prices in the near future.

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