After hitting record highs last week, gold prices declined slightly on Monday — spooked investors opted for cash instead of gold. Still, analysts believe that the trend is temporary, and that the long-term outlook for gold is positive. See the following article from The Street for more on this.
Gold prices in New York were slipping Monday as jittery investors sold gold for cash as the euro hit a four-year low.
Gold for June delivery was down $2.20 to $1,225.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Monday has traded as high as $1,242.80 and as low as $1,222.50. The U.S. dollar index was rising 0.53% to $86.55 while the euro fell 0.28% to $1.23 against the dollar. The spot gold price Monday was slipping over $6, according to Kitco’s gold index.
Gold prices were rallying in early trading as bargain-hunters bought gold at a discount after prices reached a record high last week of $1,249 an ounce. But profit-takers beat out bargain-hunters as spooked investors opted for cash over gold. But some experts think this trend will be short-lived and that buyers will seek to buy gold at “discount” prices. This tug of war will most likely confine gold to trade in a tight range over the short term.
Although there was no negative news from the European Union over the weekend, investors are still worried about the viability of the $1 trillion financial aid package to struggling eurozone countries. The euro fell to a new four year low Monday and further currency devaluation is good for gold, a form of money that retains its value.
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Another lingering fear is that the European Central Bank’s purchase of eurozone bonds will result in inflation. The more money the ECB lends to struggling countries, the more money it will have to print. The ECB reportedly has said it will sterilize its bond purchase, meaning that for every euro it lends, it will take one out of circulation, in hopes to circumvent future inflation. Investors are also worried that the austerity measures rolled out in Greece, Spain and Portugal will not be enough to stem their growing budget deficit and will also result in lackluster growth.
Fears of a euro and eurozone disaster as well as possible inflation are all long-term positives for the gold price, despite any short term selloff.
“I guess there’re a lot of people at the moment looking to cash in on their profits and certainly we’ll see maybe bit of a downside towards gold,” says Toon van Beeck, senior industry analyst at IBISWorld. “But overall … there’s much more positive investor confidence out there towards the gold environment which is going to push prices up further.”
One variable for gold is lackluster gold-buying in India. The country celebrated the Akshaya Trityia festival over the weekend where buying gold is typically seen as good luck. Suresh Hundia, the president of the Bombay Bullion Association, is quoted as saying that “buying was very poor [during the festival] — probably 90% lower than the previous year.”
Indians have been very price sensitive over the past two years and have either hoarded gold or bought scrap as gold prices skyrocketed. Although worldwide investment demand is surging, jewelry consumption is still the backbone of global gold demand. India is the global leader in gold consumption and a prolonged decrease in demand could weigh on gold prices over the long term.
Silver prices were up 32 cents to $18.90 while copper was down 19 cents to $2.93.
Gold stocks, a more risky but more profitable way to invest in gold , were lower along with broader equities. Barrick Gold(ABX) was down 2.89% to $44.30 while Newmont Mining(NEM) was lower by 1.49% at $56.82. Other large gold miners Kinross Gold(KGC) and Goldcorp(GG) were trading at $18.31 and $44.49, respectively. Yamana Gold(AUY) was down 3.14% to $11.09.
Shares of Freeport McMoRan Copper & Gold(FCX) was sinking over 4% to $66.51 on worries that decreased spending in China would limit demand for copper.
The gold ETF, SPDR Gold Shares(GLD) couldn’t sustain its rally and was down 0.18% to $120.04. The ETF added almost 5 tons on Friday and now holds a record 1,214 tons as investors bought the GLD as a way to play rising gold prices.
This article has been republished from The Street. You can also view this article at The Street, an investment news and analysis site.