Gold fails at recovery attempt, marks 5-session loss
Source: MarketWatch
metalsplace.com
Gold futures failed at a recovery attempt Monday, closing lower to tally a five-session loss of more than $50 an ounce as another sell-off in global markets and a rally in the Japanese yen prompted investors to seek liquidity by eliminating commodity positions, including gold.
Gold for April delivery closed down $4.90 at $639.20 an ounce on the New York Mercantile Exchange. Prices climbed briefly Monday to touch a high of $645.30.
The contract has lost $50.60, or 7.3%, from the closing level of $689.80 on Feb. 26.
"Apparently, a lot of people in Japan were borrowing money to speculate in gold," Sean Brodrick, a contributing editor at MoneyandMarkets.com wrote in an Internet blog Monday.
"They need the money to meet margin calls in other areas, so those funds are rushing the other way now," he said. "This is giving us the sharp (and hopefully short) downdraft we're experiencing."
But "this sell-off in gold and silver was not only overdone, it got totally out of hand," said Peter Spina, chief investment strategist at GoldSeek.com, in e-mailed comments.
Spina said he senses that gold prices may have seen a bottom and a price reversal may be underway, but there are no guarantees.
When asked about the earlier turnaround in gold prices, he said "clear-thinking investors are now realizing the opportunity that confronts them, especially with the mining equities which were pummeled over the past sessions."
"Fear has entered back into the marketplace and this will not only benefit gold going forward, it is likely to help send it to prior record highs," he said.
U.S. stocks saw another tumultuous session on Monday, as the yen rallied against major currencies, while stocks across Asia ended sharply lower, with indexes in Japan, Malaysia, Hong Kong, and Singapore retreating more than 3%.
"Gold traders see the stock market recovery off the days lows and are growing more bullish that a financial meltdown is not in the works," said John Person, president of NationalFutures.com.
"If this stock market continued lower, then I would have expected gold to fall as well – mainly because hedge funds and others who are cashed strapped would be liquidating holdings to meet potential margin calls [and] one holding might have included gold," he said in e-mailed comments.
"For some who believe the global economy is still vibrant, buying gold is a bargain near the $640 level," said Person, pointing out that gold prices were at $690 just a few days ago. "It certainly presents a lower risk to buy today than it did last Friday."
U.S. stocks attempted to hold a fragile rebound in volatile trade Monday, with investors putting money again in the battered technology sector, even as the broad market remained under pressure amid fresh jitters in global markets overnight and concerns in the distressed subprime mortgage market.
Given the declines in Asian stock markets, particularly Japan, "further warning flags were put up as to the potential global impact of the unwinding of the gargantuan positions in almost all assets that had been built on essentially free yen borrowings," said Jon Nadler, an analyst at Kitco Bullion Dealers, in an e-mailed note to clients.
"Many traders were attributing the fall in gold last week to the yen carry-trade debacle," said Person. But "I do not see that as having a major impact on gold.
"The real story was that traders were afraid [that] if the global economies were headed for a recession .... then gold would lose its luster as an investment hedge against inflationary pressures," said Person.
So contrary to the expectations of some market observers who believe that gold absolutely must rise during periods of duress, gold has been under pressure, Dennis Gartman, publisher of the Gartman Letter said in an e-mailed note.
"Gold remains a source of liquidity that can be tapped when it must be tapped," Gartman said.
On Friday, gold futures lost $21 to close at $644.10 an ounce – down more than 6% for the week. Prices have been falling from last Monday's $689.80 level in the wake of Tuesday's global sell-off in stocks, which triggered volatility across financial markets.
"Conditions are set to remain volatile in the week ahead with traders likely to be sensitive to further selling pressure, particularly now that energy prices are starting to be dragged lower," said James Moore, an analyst at TheBullionDesk.com.
Gold should encourage buying interest from physical players as well as longer-term investors, but given the current mood in the market, the precious metal might dip further in the near term before it finds a base, Moore said in an e-mailed research note.
It's not just gold that suffers
Other metals price also posted losses, with April platinum leading the pack, closing down 2.6%, or $31.80, at $1,180 an ounce after a one-month low of $1,165.
May silver tapped $12.50 an ounce to trade near a two-month low, before closing down 21 cents at $12.75 an ounce.
June palladium slipped $3.60 to end at $347 an ounce and May copper finished down 3.65 cents at $2.6705 a pound.
On the supply side, gold inventories dropped 1,083 troy ounces at 7.49 million troy ounces as of late Friday, according to New York Mercantile Exchange data. Silver supplies were unchanged to 117.6 million troy ounces, while copper supplies were unchanged at 36,994 short tons. |
