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Trading education on gold prices

TradingPub Admin | May 24, 2013

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If you want some trading education involving gold prices and the major news that affect them, you may benefit from knowing how these values were impacted during the week ending May 24 by communications released by the U.S. Federal Reserve.

Potential stimulus changes
Earlier in the week, Federal Reserve Chairman Ben Bernanke stated that in the next few meetings, the central bank might indicate changes to its existing monetary stimulus plans, according to Reuters.

The Federal Reserve currently has a regimen of purchasing $85 billion worth of financial instruments every month in an effort to bolster the money supply and jumpstart economic growth in the U.S. In addition to buying these debt-based assets, the Fed has also kept key interest rates near record lows.

On May 22, Bernanke emphasized the importance of timing any reduction in stimulus, saying that dialing it back at the wrong time could present significant risks to the existing economic expansion, Bloomberg reports.

"Bernanke's prepared remarks were unabashedly dovish, highlighting pitfalls of premature tapering," Jim Pogoda, a trading consultant for Gold Bullion International in New York, said on May 23 via an e-mail, according to the news source. "More long liquidation in gold will be seen, as long as money managers will continue their shift to an increasing exposure to equities."

The trading consultant added that "Bulls need a recovery and a close back over $1,400 an ounce to begin to attract momentum-related buying."

Strong week for gold
While the statements made by Bernanke may have put upward pressure on the price of gold, the precious metal has had a rough 2013. The commodity fell into a bear market last month, according to the common definition of an asset falling 20 percent from its recent high.

At 11:48 GMT on May 24, spot gold was valued at $1,390.04 an ounce, which represented a very small difference from its price of $1,390.40 late in the previous day, Reuters reports. However, at the time, the contract was up 2.4 percent for the week, according to the news source. This sharp increase put the metal on track to record its most robust weekly gain since late last month.

June gold futures also appreciated during the period, as they were 1.9 percent higher for the week at 7:49 a.m. on the Comex division of the New York Mercantile Exchange, Bloomberg reports. At that price, the contract was on par to have its best week since April 26.

Given the uncertainty that surrounds the future of the bond purchases made by the Federal Reserve, it is difficult to predict where the precious metal will go in the near future. One major objective of the policymakers of the U.S. central bank is lowering the existing jobless rate, as reducing stimulus before doing so could detract significantly from the U.S. economic expansion, according to the news source.

Bernanke's "major concern is pulling back from quantitative easing too early," Steven Dooley, head of research at Melbourne-based brokerage Forex Capital Trading Pty, told the media outlet. The investing public now "believes quantitative easing might not be tapered off quite as early as previously thought."

Investors flee gold funds
Exchange-traded funds backed by gold have had a very tough year, as financial research firm Macquarie recently wrote in a note that these ETFs have liquidated 450 tons of the precious metal, according to Reuters.

The largest such fund in the world, SPDR Gold Trust, indicated at the close of business on May 23 that its holdings of the commodity had dropped 1.5 tons, pushing the amount of the metal that flowed out of the ETF to 19.8 tons during the week, the media outlet reports.

Since there are many different variables that impact gold prices, you can get more trading education regarding the metal at TradingPub, home to some of the industry's top traders and investors.