Gold prices recovered on Monday and Tuesday, after last week’s sell-off — triggered by investor reaction to the economic developments in the Eurozone, and escalating tensions between South and North Korea. With the equity markets continuing to show weakness, this week investors are looking to cover their positions by investing in gold. The following article from The Street has more on this.
Gold prices settled just below $1,200 Tuesday as bargain hunters bought gold as a safe haven asset, overshadowing investors’ need for cash.
Gold for June delivery added $4 to $1,198 at the Comex division of the New York Mercantile Exchange. The gold price today has traded as high as $1,200.40 and as low as $1,185.20. The U.S. dollar index was adding 0.39% to $86.54 while the euro regained some ground and was losing 0.10% to $1.23 against the dollar. The spot gold price Tuesday was adding $5, according to Kitco’s gold index.
Gold prices were rebounding from an overnight selloff as European debt issues and escalating tensions between North and South Korea dragged on Asian and European markets.
The Bank of Spain’s takeover of regional bank Cajasur, as well as the news that four Spanish banks were merging to survive the financial crisis, triggered investor panic across Europe. The reactionary fear-driven moves underscored the fragility of the euro and European Union.
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Asian markets were also suffering as North Korean leader Kim Jong II ordered his military be on combat alert status after investigations proved that North Korea was responsible for the March sinking of a South Korean ship, the Cheonan, in which 46 sailors were killed. The aggression is now being regarded as a possible act of war.
Global financial and political unrest sunk stocks, and investors were forced to sell gold positions to cover losses in early trading. Gold prices rallied by double digits Monday, almost reaching $1,200, marking one of the few investments that offered a substantial profit.
As investors absorbed more downside in U.S. equities, they bought gold as a safe haven investment. Gold futures contracts saw some volatility Tuesday as traders unwound and covered certain positions. On the flip side, the spot price of gold rose slightly faster than futures as investors opted for the physical metal over stocks and “paper” gold.
“Today’s option expiration … means overstocked traders even out by selling extra futures that were the result of options becoming futures,” says George Gero, vice president of global futures at RBC Capital Markets. “The stock market may end [with] lower lows and lower highs next week … we may see more profit-taking in metals.”
The U.S. dollar was also stronger on safe haven demand as investors viewed the dollar as the strongest fiat currency. There was speculation that central banks may be shifting holdings from euros to dollars. A stronger dollar could be tempering gold’s upside as the metal becomes more expensive to buy in other currencies. But if gold can hold up throughout options expiration, a stronger dollar and losses in the stock market, prices could make another run into the $1,200 arena.
Silver prices gave up some gains from Monday and settled 21 cents lower to $17.76 while copper lost 10 cents to $3.03 as investors worried that as global growth slowed spearheaded by China and Europe, so would demand for industrial metals.
Gold mining stocks, a more risky but more profitable way to invest in gold , were mixed. Barrick Gold(ABX) closed at $42.35 while Newmont Mining(NEM) closed slightly higher at $53.54. Other large mining company Kinross Gold(KGC) settled at $16.96 while AngloGold Ashanti(AU) closed over 4% higher to $40.62.
Shares of Freeport McMoRan Copper & Gold(FCX) added over 3% while the popular gold ETF SPDR Gold Trust(GLD) was slightly higher at $117.36. The gold ETF added 16 tons on Monday as investors piled into gold.
This article has been republished from The Street. You can also view this article at The Street, an investment news and analysis site.