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Gold prices fall as ETFs continue to cut holdings

TradingPub Admin | April 8, 2013

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Want to learn more about how market news can impact the price of gold futures? Contracts for the precious metal depreciated on April 8, as markets responded to news that exchange-traded funds (ETFs) further reduced their holdings of the commodity, according to Reuters. 

Falling gold
June gold was trading 60 cents per ounce lower at $1,575.30 on the Comex division of the New York Mercantile Exchange, after rising 1.5 percent during the prior trading session, MarketWatch reports.

This contract for June gold was valued at $1,576 an ounce at 14:06 GMT, according to Reuters. At the time, spot gold was 0.4 percent lower at $1,575.26 per ounce. 

A lackluster jobs report released on Friday coincided with a 2 percent gain in the price of the precious metal, the media outlet reports. Investor sentiment was impacted by Labor Department data indicating that the country's employers had the weakest job creation in nine months during March. Confidence that the Federal Reserve will continue to purchase bonds was bolstered by the disappointing figures. 

Strong dollar
The decline in the price of gold was also partially attributed to a dollar that gained in value relative to other currencies, MarketWatch reports. The initiation of a new bond-buying program in Japan caused the yen to fall against the greenback. 

Analysts at Citigroup indicated that their outlook for gold is bearish as a result of the value of the currency, stating that the precious metal is "hovering dangerously above weak support levels and the strong dollar is squeezing the life out of them," according to the news source. 

Citi predicted that the greenback will remain strong this year, saying in a note that "it seems that renewed weakness in the U.S. and euro zone growth outlook need not produce the drop in the U.S. dollar across the board we saw in 2011," Reuters reports.

The document said that "we suspect that the U.S. cyclical leadership would remain intact even if the economy goes through a 'soft patch' in coming months."

ETF outflows
The media outlet reports that during the week ending on April 5, ETFs reduced their holdings of the precious metal to their lowest level since August 2012. 

Commerzbank analyst Carsten Fritsch noted this change on the behalf of the funds and also the sharp decline in gold values that happened the week before, stating that "prices still look vulnerable in the short term after the huge drop to the lowest in ten months last week," according to the news source. 

He added that this "level could be tested again this week given continued outflows out of gold ETFs and bearish short-term investor market positioning." 

Market speculation
In addition, speculative investors reduced their exposure to bullish contracts for the metal, MarketWatch reports. 

Analysts of Commerzbank indicated that during the week ending April 2, these market participants cut their net length to 44.2 thousand contracts, which represented a reduction of 11.7 thousand, according to the news source. The market experts who wrote the report noted that the change "puts them only just above the four-year low they hit in early March." 

Federal Reserve speculation
Reuters reports that the upcoming meeting of the Federal Open Market Committee will provide a key impetus for the direction of gold prices, according to analysts. 

"Market participants will be keen to get further clarity on where Fed members stand on QE, particularly given rising talks of flexibility and potential tapering of asset purchases," UBS stated in a note, according to the news source. 

The central bank has been engaging in robust stimulus, buying $85 billion in debt-based securities every month since late last year. 

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