Rally appears tired, but risk aversion could arrest fall
Veronica Brown and Nick Vinocur
LONDON — Reuters, Tuesday, Jun. 23, 2009 09:24AM EDT
Gold rallied from a six-week low hit earlier in the global session, rising above $923 (U.S.) per ounce with currency fundamentals proving the dominant factor as the dollar got stung by concerns over U.S. indebtedness.
Spot gold stood at $923.40 per ounce by 1132 GMT, having earlier hit a six-week low at $912.90 in Asian trade. That compared with $921.90 quoted late in New York on Monday.
Traders said that bullion prices, having hit three-month highs recently just shy of $1,000 an ounce, were ripe for the falls seen over the past few days with speculators looking to clear out stale long positions.
But the metal’s traditional role as a hedge against jittery sentiment in other asset classes was also kicking in as investors, spooked by doubts about growth prospects for leading economies, shift into risk-averse gear.
Concerns about reserve diversification away from U.S. assets caused the dollar to turn lower against the euro ahead of the Federal Reserve’s monthly meeting, after Moody’s said one risk to the U.S.’ triple-A rating is if the dollar is challenged as the main reserve currency..
“Gold is tracking the dollar closely today, but we’ll have to wait for the FOMC statement tomorrow night for the market to choose to move clearly in one direction or another,” said David Thurtell, analyst at Citigroup.
A weaker dollar makes metals and other commodities priced in the U.S. unit cheaper for non-U.S. investors.
Crude oil prices rallied to $68 a barrel on Tuesday ahead of data expected to show a fall in U.S. oil stocks, reversing losses and renewing the appeal of gold as a potential inflation hedge.
“The key driver here is basically crude oil, the dollar and inflation expectations, and I think gold at the moment is pricing in a huge amount of inflation expectations,” said Jesper Dannesboe, an analyst at Societe Generale.
U.S. gold futures for August delivery rose nearly half a per cent to $924.80 per ounce on Monday on the COMEX division of the New York Mercantile Exchange.
Overall investor caution was stirred by the World Bank on Monday, which said prospects for the global economy remained “unusually uncertain” as it cut 2009 growth forecasts for most economies.
“Investor risk appetite has lost forward momentum as the market begins to question the extent to which the green shoots of the financial risk rally have roots in the real economy,” Tullet Prebon said in a note to clients.
“There is nothing like a 3.1 per cent drop in the S&P on a day to get the bears out of the woods…, but the joke aside, it is beginning to look like those who hoped for a V-shaped recovery will find that we are looking at the tail end of it.”
Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold
