The gold price shot up to a 2-week high on Monday, before retreating again as the week wore on. Market watchers see possible further falls although they mostly consider the downside is limited.
Investors in gold have been having a nerve wracking ride of late with several false dawns promising a return to the high $900s - and even bringing out predictions from some analysts of a rapid return to the $1,000 level seen earlier in the year. But, with the US dollar showing signs of strength and oil moving up and down as well, gold has tended to follow the direction suggested by the strengths and weaknesses of these other key influences, rather than plough its own furrow on fundamentals alone.
Gold is primarily looked at by the broader investment market, rather than by the strong gold bug element, as providing a hedge against inflation and against major political turmoil and unrest. Recent statements by Ben Bernanke, the Chairman of Governors of the US Federal Reserve, have suggested that inflation could be becoming a problem and has hinted that the recent spate of cuts in US interest rates to help stimulate the economy may be at an end, and that interest rate rises may be on the horizon to clamp down on inflation due to higher food and commodity prices - not least oil.
This, in turn, has seen a strengthening of the value of the dollar against other currencies (although not a very certain one as occasional bouts of poor economic data tend to reverse the perceived sentiment) and at times when the dollar strengthens and oil falls back from its peaks, the gold price tends downwards.
That is undoubtedly what has occurred over the past few days with a briefly weak dollar and surging oil pulling gold back above the $900 level, only to see it tumble back to the $860s this morning amid fears that it could fall even lower.
But, consider the inflation scenario. The high food, metal commodity and oil prices are filtering through and it is not only the US which may be considering interest rate rises to try and combat inflationary trends, but also the European Central Bank and the Bank of England among others, which have also intimated they may be set on the interest rate rise route. This may mean, should this all come about, that the relative strength of the US dollar engendered by an interest rate increase in the US may be negated by similar, or bigger, interest rate rises elsewhere.
Be that as it may, there are still some fairly serious political tensions in the Middle East, the gold price is getting to a level where jewellery gold purchases may start rising again, world mine supply may well fall again this year, the US economy is still close to recession, inflation is beginning to strike hard in countries like China. All these should be pointers to gold price strength in the medium term.
As we have pointed out here before, investment interest in gold by the greater investment community is very much based on economic perceptions. The past week has seen the pessimists on the economic front take a breather perhaps, but it wouldn't take much in the way of adverse news to bring the doomsayers back and the gold price could then yo yo back up again as fast and as far as it has come down.
The northern hemisphere summer is here. Activity in the markets which drives stock and commodity prices is traditionally at a lower level at this time of year, but come August returning analysts, fund managers and individual investors will be taking a hard look at what they see ahead for the rest of the year and unless the economic situation has shown further improvement, which at this time looks to be increasingly unlikely, the factors which have driven the gold price upwards over the past few years could be back in force again.
Analysts specialising in the gold market seem almost unanimous that the second half of the year will see a rising gold price trend again (although there are some notable exceptions). In the meantime the downside risk is probably limited - but is certainly there - and probably the majority of gold investors will be hanging in for better times ahead. Analysts see good downside resistance in the $850s and $860s. Watch the US indicators. They, and the dollar, and oil, look to continue to set the gold price trend in the immediate future.
Thursday, June 12, 2008
See What People Are Saying About... Speculators Gone Wild
There's definitely no inventory shortage -- when it comes to Fast Money viewer opinions over the rampant speculation in commodities, particularly crude.
Rick from Florida puts it succinctly, "Why are 'gas' and 'distillate' inventories INCREASING while crude oil inventories are DECREASING over several weeks?"
Fast Money fan Shannon in North Carolina offers a regulatory suggestion to curtail the out-of-control speculation: "make a restriction that traders must maintain the capacity to take delivery and show proof of that."
And Miller Tabak strategist Tony Crescenzi's prediction on Tuesday's show of a possible 500-point rebound next week continues to be met with doubt. Fast Money viewer Frank reminds us that consumer buying power has all but been killed by high energy prices and so Q2 earnings "will not be rosy."
Rick from Florida puts it succinctly, "Why are 'gas' and 'distillate' inventories INCREASING while crude oil inventories are DECREASING over several weeks?"
Fast Money fan Shannon in North Carolina offers a regulatory suggestion to curtail the out-of-control speculation: "make a restriction that traders must maintain the capacity to take delivery and show proof of that."
And Miller Tabak strategist Tony Crescenzi's prediction on Tuesday's show of a possible 500-point rebound next week continues to be met with doubt. Fast Money viewer Frank reminds us that consumer buying power has all but been killed by high energy prices and so Q2 earnings "will not be rosy."
Gold tumbles as retail sales hike demand for dollar
NEW YORK (MarketWatch) -- Gold futures on Thursday fell to their lowest level since early May, upended after stronger U.S. retail sales bolstered demand for the dollar and tarnished the precious metal's allure as another asset option and hedge against inflation.
"The market's roller-coaster pattern continued amid the high-noon standoff developing between the Fed and the U.S. dollar's morticians," said Jon Nadler, senior analyst, Kitco Bullion Dealers.
That view was also strengthened by comments from Philadelphia Federal Reserve President Charles Plosser, who told the CNBC television network Thursday morning, "We need to act pre-emptively." Read The Fed.
After sliding to a session low of $131.55 an ounce, gold for August delivery recovered slightly to end $10.90 lower at $872.00 an ounce on the New York Mercantile Exchange.
Another loser in Nymex metals dealings, July silver fell 70 cents to settle at $16.48 an ounce.
In electronic trade late Thursday on Globex, gold for August delivery fell $1.00 to $871.00 an ounce.
The Commerce Department reported an unexpected 1% rise in retail sales last month, marking the fastest increase in six months. Read Economic Report.
The dollar gained strength in the belief that a rebound in retail sales would back the case for the Federal Reserve to hike U.S. interest rates, with the dollar index (DXY:US Dollar Index Future - Spot Price
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"Soaring prices will continue to plague the Fed, and keep policy on hold at the June FOMC meeting with a renewed bias in the balance of risk toward higher inflation -- despite ongoing concerns about the economy," said analysts at Action Economics. The Federal Open Market Committee sets U.S. monetary policy and benchmark interest rates.
Metals investors largely bypassed a Labor Department report that initial jobless claims jumped by 25,000 last week to 384,000. See more.
Another report from the Labor Department indicated that prices of goods imported into the country climbed 2.3% in May, less than the 2.7% growth that analysts had been looking for. Read full story.
Bullion's sharp retreat stands in contrast to gains on Wednesday, with bullion prices on a volatile roller-coaster ride tracking the movements in crude-oil prices. Investors buy gold for its appeal as a hedge against oil-generated inflation but have tended to sell the precious metal when the price of crude moves lower.
On Thursday, crude futures climbed 36 cents to close at $136.74 a barrel on Nymex, after spending the bulk of the day on the decline.
"The market's roller-coaster pattern continued amid the high-noon standoff developing between the Fed and the U.S. dollar's morticians," said Jon Nadler, senior analyst, Kitco Bullion Dealers.
That view was also strengthened by comments from Philadelphia Federal Reserve President Charles Plosser, who told the CNBC television network Thursday morning, "We need to act pre-emptively." Read The Fed.
After sliding to a session low of $131.55 an ounce, gold for August delivery recovered slightly to end $10.90 lower at $872.00 an ounce on the New York Mercantile Exchange.
Another loser in Nymex metals dealings, July silver fell 70 cents to settle at $16.48 an ounce.
In electronic trade late Thursday on Globex, gold for August delivery fell $1.00 to $871.00 an ounce.
The Commerce Department reported an unexpected 1% rise in retail sales last month, marking the fastest increase in six months. Read Economic Report.
The dollar gained strength in the belief that a rebound in retail sales would back the case for the Federal Reserve to hike U.S. interest rates, with the dollar index (DXY:US Dollar Index Future - Spot Price
News, chart, profile, more
Last: 73.74+0.45+0.62%
10:40pm 06/12/2008
Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
DXY 73.74, +0.45, +0.6%) , which tracks the greenback against major currency rivals, gaining nearly 0.9% to 73.88. See Currencies.
"Soaring prices will continue to plague the Fed, and keep policy on hold at the June FOMC meeting with a renewed bias in the balance of risk toward higher inflation -- despite ongoing concerns about the economy," said analysts at Action Economics. The Federal Open Market Committee sets U.S. monetary policy and benchmark interest rates.
Metals investors largely bypassed a Labor Department report that initial jobless claims jumped by 25,000 last week to 384,000. See more.
Another report from the Labor Department indicated that prices of goods imported into the country climbed 2.3% in May, less than the 2.7% growth that analysts had been looking for. Read full story.
Bullion's sharp retreat stands in contrast to gains on Wednesday, with bullion prices on a volatile roller-coaster ride tracking the movements in crude-oil prices. Investors buy gold for its appeal as a hedge against oil-generated inflation but have tended to sell the precious metal when the price of crude moves lower.
On Thursday, crude futures climbed 36 cents to close at $136.74 a barrel on Nymex, after spending the bulk of the day on the decline.
Oil declines to $132 as greenback posts gains
Oil prices fell sharply yesterday as the dollar moved higher and forced crude to lose some of its appeal as a hedge against inflation.
Light, sweet crude for July delivery fell $4.38 to $132 a barrel on the New York Mercantile Exchange.
Given the volatile price moves of recent days, oil's decline was not seen as a sign of a changing trend. Prices have gone through several sharp swings over the past week, rising more than $16 last Thursday and Friday as the dollar weakened, falling more than $7 earlier this week as the greenback gained, and jumping back more than $5 on Wednesday as supplies and the dollar fell.
Analysts say oil is range trading, waiting for direction from a significant move in the dollar or change in supply and demand fundamentals.
Many analysts believe the market's overall sentiment remains bullish, and the new records are a real possibility in coming days. Oil reached its latest trading record of $139.12 on Friday.
"The price movement of crude has been ... dictated by what we've seen in the greenback," said Edward Meir, an analyst at an analyst at MF Global UK, in a research note.
Yesterday, the dollar gained ground after the Commerce Department said retail sales rose in May by the biggest amount in six months as 57 million tax rebate checks reached consumers. The 15-nation euro fell to $1.5409 from $1.5571 late Wednesday.
Investors who bought commodities such as oil to protect against inflation when the dollar was falling tend to sell when the greenback gains ground. Also, a stronger dollar makes oil more expensive to investors overseas.
The dollar's protracted decline has been a major factor behind the doubling of oil prices over the past year.
Recent statements by U.S. Federal Reserve Chairman Ben Bernanke and U.S. President George W. Bush emphasising the importance of strengthening the dollar helped the U.S.
currency gain ground. But analysts believe more than words are needed to turn the tide; an actual interest rate increase is needed to send the dollar definitively higher, and oil prices down, said Stephen Schork, an analyst and trader in Villanova, Pennsylvania.
In other Nymex trading, July natural gas futures rose 14 cents to $12.80 per 1,000 cubic feet after the Energy Department said inventories rose last week by 80 billion cubic feet, at the low end of analyst estimates.
In London, July Brent crude fell $3.55 to $131.47 on the ICE Futures exchange.
Light, sweet crude for July delivery fell $4.38 to $132 a barrel on the New York Mercantile Exchange.
Given the volatile price moves of recent days, oil's decline was not seen as a sign of a changing trend. Prices have gone through several sharp swings over the past week, rising more than $16 last Thursday and Friday as the dollar weakened, falling more than $7 earlier this week as the greenback gained, and jumping back more than $5 on Wednesday as supplies and the dollar fell.
Analysts say oil is range trading, waiting for direction from a significant move in the dollar or change in supply and demand fundamentals.
Many analysts believe the market's overall sentiment remains bullish, and the new records are a real possibility in coming days. Oil reached its latest trading record of $139.12 on Friday.
"The price movement of crude has been ... dictated by what we've seen in the greenback," said Edward Meir, an analyst at an analyst at MF Global UK, in a research note.
Yesterday, the dollar gained ground after the Commerce Department said retail sales rose in May by the biggest amount in six months as 57 million tax rebate checks reached consumers. The 15-nation euro fell to $1.5409 from $1.5571 late Wednesday.
Investors who bought commodities such as oil to protect against inflation when the dollar was falling tend to sell when the greenback gains ground. Also, a stronger dollar makes oil more expensive to investors overseas.
The dollar's protracted decline has been a major factor behind the doubling of oil prices over the past year.
Recent statements by U.S. Federal Reserve Chairman Ben Bernanke and U.S. President George W. Bush emphasising the importance of strengthening the dollar helped the U.S.
currency gain ground. But analysts believe more than words are needed to turn the tide; an actual interest rate increase is needed to send the dollar definitively higher, and oil prices down, said Stephen Schork, an analyst and trader in Villanova, Pennsylvania.
In other Nymex trading, July natural gas futures rose 14 cents to $12.80 per 1,000 cubic feet after the Energy Department said inventories rose last week by 80 billion cubic feet, at the low end of analyst estimates.
In London, July Brent crude fell $3.55 to $131.47 on the ICE Futures exchange.
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