Gold 10 Month Low on FED Comment & Selling to Cover Equity Losses

April 4, 2013 at 09:36

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Gold dropped to a 10-month low on Thursday as investors cashed in the precious metal to cover steep losses in equities after disappointing U.S. economic data.

Gold, a traditional safe haven, also failed to capitalise on tensions in the Korean peninsula, where North Korea has moved what appears to be a mid-range missile to its east coast, according to South Korea’s Yonhap news agency.

It rallied to a 1-month peak in March on worries about fiscal stability in Europe, as politicians scrambled to clinch a bailout for Cyprus.

“The environment for gold is pretty bearish now. I think if gold tests the lower trend channel, it has the potential to drop to the $1,530 level,” said Joyce Liu, an investment analyst at Phillip Futures in Singapore.

“As for North Korea, I think investors are seeing the threats more like a joke. They are not reacting as if North Korea is really going to launch a nuclear-loaded missile. Funds are moving out of gold because there’s less need for a safe haven.”

Silver tumbled to its lowest level since July last year, platinum dropped to its lowest since late August, and thinly-traded palladium was at a two-week trough.

Tokyo gold futures declined as much as 2.1 percent before paring some losses as the weaker prices ignited buying from speculators in Japan. Premiums for gold bars in Tokyo edged up to 50 cents an ounce to spot London prices from zero earlier this week.

“The general public is buying. But I don’t think the Japanese people have much interest in the developments in North Korea,” said a physical dealer in Tokyo.

Stocks fell in Asia on Thursday after weak data stoked concerns that a key American jobs report due later in the week will signal slowing U.S. growth.

The 25-day inverse correlation between gold and the S&P 500 index was at negative 0.2 after strengthening to negative 0.5 on April 2 — the strongest link since September 2011.

U.S. companies hired at the weakest pace in five months in March as recent strong demand for construction jobs evaporated, while growth in the vast services sector slowed, signs that the economic recovery could be hitting a soft patch.

Markets will be on tenterhooks until Friday’s release of the broader government payrolls report for March that would give a fairer assessment of the U.S. jobs market.

Signs of economic improvement could prompt the U.S. Federal Reserve to halt its bullion-friendly bond-buying programme earlier than expected.

Fears that central banks’ money-printing to buy assets will stoke inflation have been a key driver in boosting gold, which rallied to an 11-month high in October last year after the Fed announced its third round of aggressive economic stimulus

“The gold price is, in our view, in bubble territory. Investors have pushed the gold price sharply higher over the past 10 years with the past five-year rally driven by fears that aggressive central bank quantitative easing would lead to very high inflation,” Societe Generale said in a report.

“But inflation has so far stayed low and now we are beginning to see the economic conditions that would justify an end to the Fed’s QE, fiscal stabilisation that has passed its inflection point and a U.S. dollar that has begun trending higher.”