Gold Investors Wait Out Year-End Clutter In Futures, Trading Posted by Adam King on December 21, 2012
Discouraged by the stalled budget talks in Washington, gold neared a four-month low on Friday, preparing for the steepest weekly drop since June as the spot price of gold reached $1,649.20 per troy ounce in early trade on Friday after hitting a low of $1,635.24 on Thursday. U.S. gold futures for February delivery gained 0.25 percent to $1,650.00.
The outlook prices for the growth of gold are all positive, particularly in the New Year, but gold is currently undergoing a hard-hitting reaction to particularly shaky market sentiment in which it has trouble differentiating between its role as a risk-asset and its traditional safe-haven asset status.
A better-than-expected reading of the U.S. GDP report brought concerns over how long the Federal Reserve will continue quantitative easing, concerns that brought bullion prices tumbling to a four-month low with long positions liquidated. The fiscal stimulus of quantitative easing is traditionally beneficial to gold and precious metals, particularly with the pervasive concerns over long-term inflation and currency debasement. Those concerns, despite the reaction to the report and the drop in gold, have not abated in the slightest.
The stalling fiscal cliff debates in Washington, as the New Year rapidly approaches, have also weighed on gold. Forbes’ analysis has called the negotiations an overall bearish drag on many markets, raw commodities included. The gridlock in Washington had been supporting gold earlier in the month as uncertainty drove panic buying and risk hedging. It appears now that the influence of the cliff debate is a two-edged sword for gold bullion markets as it cuts the other way.
VTB Capital analyst Andrey Kryuchenkov said on Friday that spooked investors chose not to stand in front of the moving train and quickly took profits before year-end, cashing out their positions rather than allowing them to mature through the New Year.
Still, market-watchers are close to unanimously bullish for the precious metals’ prospects in 2013.
ANZ said in a note that they think near-term clutter is clouding gold’s favorable outlook—importantly, the fiscal cliff looks like a no-win situation and a lose-lose scenario for gold. They added that looking through the short-term volatility, they think such a decline creates significant value for bullion buyers over the medium term.