Gold futures rise as markets respond to G7 news

TradingPub Admin | February 12, 2013

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A perfect example of how major announcements can bolster investor sentiment and push risk-on assets higher is the rally that gold futures enjoyed on February 12, 2013, after markets responded to news provided by the Group of Seven (G7) leading economies. 

Rising gold futures
Reuters reports that gold futures scheduled for April delivery on the Comex division of the New York Mercantile Exchange were trading at $1,648.70 an ounce early in the day. 

Later in trading, this contract had risen to $1,649.10 per ounce, according to Kitco News. The yellow metal was facing some price resistance on Monday, but on Tuesday, gold was supported by crucial outside variables. Crude was higher and the dollar index had fallen. 

G7 meeting
The seven nations contained in the G7 convened to discuss a wide range of policy matters, and issued a statement designed to calm concerns mounting among market participants that these major economies might engage in "currency wars" by moving their exchange rates lower, the media outlet reports. 

The members of the G7 stated that they had no interest in provoking such activity, and were mainly concerned with accelerating the growth rate of their gross domestic product. According to the news source, precious metals received somewhat of a boost from G7 statement. 

The threat of nations around the world devaluing their currencies in an effort to bolster their economies has generated substantial discussion of these potential "currency wars," and one major contributor to these concerns is the recent monetary easing conducted by the Bank of Japan, Reuters reports. 

The G7 was preceded by the greenback declining modestly relative to other currencies, after the dollar index rose to its highest value in one month earlier in the day, according to the news source. 

"A combination of elements, including dollar weakness after the G7 statement, rebounding stock markets and stronger oil prices, helped gold's bounce back from one-month lows," Quantitative Commodity Research consultant Peter Fertig told the media outlet. 

The meeting of the Group of 20 nations (G20) was scheduled for later in the same week that held the G7 event, and the attention of market participants was drawn to this meeting, according to Kitco News.

The media outlet reports that the matter of currency manipulation was likely to be brought up during the G20 event, and the perception of many that the G7 attempted to address this concern through the statement stressed the urgency surrounding the currency devaluation. 

Macro factors
Another example of how news can impact the price of precious metals is the effect of lower projected demand in Asia. 

Analysts have stated that in the short-term, the sentiment surrounding gold is seen tracking lower, according to Reuters. These market experts noted the lack of demand in Asia since many market participants are not selling during the week that began on February 11. 

"The physical demand remains anaemic with China away on public holidays this week while the rupee weakened last week, deterring Indian buyers," VTB analyst Andrey Kryuchenkov told the news source. "At this point, bullion buyers in Asia would not want to get involved in an investor driven market when sentiment towards gold continues to sink."

Investors have shunned gold and instead moved toward riskier assets such as equities as these market participants respond to economic data painting a strong business climate, analysts have stated recently. 

"The ever increasing macro confidence has dented bullion's traditional safe-haven appeal, while alternative and more volatile assets, including PGMs, offer better returns away from gold," Kryuchenkov stated. 

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