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Gold surges during first day of quarter

TradingPub Admin | July 1, 2013

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The price of gold surged on July 1, which was the first day of the third quarter.

Surging gold prices
The precious metal had a very strong day, as spot gold surged as much as 2.2 percent to reach as high as $1,260.61 per ounce, before paring these gains to settle at $1,249 an ounce, according to Reuters.

August gold had even more robust performance, spiking 2.6 percent to settle at $1,255.70 at 1:46 p.m. on the Comex in New York, Bloomberg reports. To illustrate the severity of recent fluctuations, the price of this contract fell to as little as $1,179.40 on the prior trading day.

Strong physical demand
The metal rose in value at the same time that physical demand rose, according to the news source. Tim Gardiner, a managing director at TD Securities Inc. in New York, stated that the premium for gold in China increased to $36 per ounce.

"Physical demand in Asia continues to be strong," Carlos Perez-Santalla, a New York-based broker at Marex North America LLC, said in a telephone interview. "The focus on the Fed stimulus and when the tapering may begin has begun to wane."

While some explained the increase in prices that happened on July 1 in terms of physical demand, others seemed to think that it was an inevitable consequence of the declines that happened recently, according to Reuters. Andrey Kryuchenkov, an analyst at VTB Capital, had this sentiment.

"I don't think it's sustainable while volumes remain relatively low," Kryuchenkov told the media outlet.

Rough year for gold
The rebound has happened after the precious metal has had a very tough time in 2013, plunging 23 percent in the second quarter of the year, as global market participants responded to statements that Federal Reserve officials made about the future of monetary easing.

Federal Reserve Chairman Ben Bernanke told members of the media late last month that the central bank could possibly start reducing the existing regimen of bond purchases in 2013 and then stop them entirely in 2014. For this to happen, key economic indicators such as the labor market and inflation would need to be in a certain place.

Bloomberg reports that for all of 2013, gold futures have plunged 25 percent in value. As a result of these declines, exchange-traded products that are based on holdings of the commodity have lost almost $60 billion in value.

Gold fell into a bear market in April, having declined 20 percent from the record level it reached in 2011. While many market experts have regarded gold as a safe haven investment in the recent past, some have lost their confidence in the commodity.

Economic data
Reuters reports that amid this backdrop of changing sentiment, market participants are now looking to economic data that will be released later in the week. The U.S. Labor Department will release its monthly jobs report on Friday, which will draw scrutiny from investors and many others.

If the jobs report is strong, the Federal Reserve will be more likely to reduce its quantitative easing this year, according to the news source. However, if the report is weak, it will provide backing for those who want to leave the current program of buying $85 billion worth of bonds every month unchanged. Global market participants will also be scrutinizing the upcoming policy meeting of the European Central Bank for hints as to how the euro zone is faring.

"I doubt there will be a lot of bargain hunting given a whole array of macro numbers this week, including the [European Central Bank] statement (and with) non-farms in focus," Kryuchenkov said. "The market is putting extra weight on U.S. economic releases."

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