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Gold futures were on the defensive Tuesday as they tracked moves in the euro on worries about the European debt crisis.
Other factors cited by analysts for a pullback from early-week highs include softer Chinese economic data, a technical failure ahead of $1,700 an ounce, a lack of fund participation, possible hesitation to build positions as the government considers position limits, and fears that some large entity will sell gold to raise cash as the European debt crisis continues.
Meanwhile, analysts also say gold has formed some correlation with the stock market lately, a turnabout from late summer when gold drew safe-haven demand when stocks tumbled on the European crisis. The metal hit its lows earlier Tuesday when equities were on the defensive but have pared losses since as U.S. stocks turned positive.
As of 1:16 p.m. EDT, December gold futures were $24.50, or 1.5%, lower at $1,652.10 an ounce on the Comex division of the New York Mercantile Exchange. At the $1,628.20 low, they were down 4% from the early-Monday high of $1,696.80.
Several analysts said gold fell on dollar strength as the European debt saga continued, particularly after a German government spokesman suggested Monday that a resolution might not come as quickly as markets had hoped. Moody’s Investors Services said France’s triple-A rating could be at risk due to the cost of bailing out other euro-zone states or French banks.
“Over the past several weeks, gold might have garnered some safe-haven demand on the back of that,” said Dave Meger, director of metals trading at Vision Financial Markets. “However, that has not been the case as of late… Right now, as we see negative news continue to come out of Europe, that is strengthening the dollar and pressuring the euro. And then you’re seeing the old strong dollar/weak gold correlation.”
For much of the past decade, gold rose as the dollar weakened, and vice-versa.
Several observers also cited some of the recently softer Chinese economic data for the retreat in gold. The government reported overnight that third-quarter gross-domestic-product growth slowed to 9.1% from 9.5% in the previous quarter.
This prompted some concerns about future Chinese demand, particularly since the country has been a good source of buying, said Frank Lesh, futures analyst with FuturePath Trading. Additionally, the data is “somewhat un-inflationary,” said George Gero, vice president and precious metals strategist with RBC Capital Markets Global Futures.
The Chinese data prompted selling in industrial base metals, and this spilled over into the precious complex, Meger said.
“China was certainly viewed for a long period of time as the bright spot in the global economy,” he said. “As we continue to see concerns about Chinese growth, we understand that demand for commodities could certainly wane in the months ahead.”
Kevin Grady, trader on the Comex floor with MF Global, also said gold also has been hurt some by anticipation of a Commodity Futures Trading Commission meeting on position limits for commodities. This may be keeping some participants from building positions.
source:forbes.com
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