Investors Sell Off Gold In Favor Of Cash

Weak manufacturing data from China, disappointing US home sales and continuing weakness in the US job market led to a sell-off in gold at the start of the …

Weak manufacturing data from China, disappointing US home sales and continuing weakness in the US job market led to a sell-off in gold at the start of the new quarter as investors sought to transfer their holdings to cash. While analysts expect a short term decline in gold prices, the long-term outlook for gold remains bullish. See the following article from The Street for more on this.

Gold prices were sinking Thursday as investors opted for cash at the start of the third quarter.

Gold for August delivery tumbled $39.20 to settle at $1,206.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Thursday has traded as high as $1,244.80 and as low as $1,205.60. The U.S. dollar index was losing 1.47% to $84.75 while the euro was rallying 2.05% to $1.249 vs. the dollar. The euro was buoyed by Spain’s $4.3 billion bond sale despite Moody’s downgrade of five Spanish regions. The spot gold price Thursday was plummeting $43, according to Kitco’s gold index.

The start of the third quarter provided little cheer for investors¬† as weak manufacturing data from China, weak initial jobless claims in the U.S. and disappointing pending home sales weighed on risk appetite. Gold wasn’t the only victim, most assets were selling off as traders settled for cash and U.S. Treasuries. The yield on the 10-year note fell to 2.93%.

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“The euro is key,” says Adam Klopfenstein, senior market strategist at Lind-Waldock. “The euro is getting more confidence behind it … when you see the euro up … a lot of the people that were buying gold off of the fears of the eurozone are dumping it.” Klopfenstein thinks this trade will be short-lived and that a bleak global macro picture will increase gold’s appeal as a safe haven asset. “I really think this is more indicative of a one event type of related selling.”

Also the Dow Jones Industrial Average lost 10% in the second quarter while gold prices popped more than 11% leaving gold one of the only profitable assets. If investors need money to cover losses in stocks or just want cash, gold is one of the best places to do it.

Thinning volume before the long holiday weekend in the U.S. and continued book-squaring were supporting factors in gold’s free-fall. Gold prices rallied slightly into the end of the second quarter as investors bought gold to show they owned the metal in the portfolio for the first half of the year. These investors can be fickle though as they are just as apt to sell these positions as the third quarter gets underway. Gold prices have also broken their critical support level of $1,225 an ounce which could be triggering some technical sell-stop orders.

“Gold trends generally lower during the third quarter,” says James Moore, analyst at in his daily metals report. “[However,] given the current concerns over inflation, slowing economic recovery and European debt, the metal may look to extend higher as investors continue to diversify from fiat currencies.”

Silver prices were losing 91 cents to $17.79 while copper was down 7 cents to $2.87.

Gold mining stocks, a more risky but more profitable way to invest in gold, were sinking along with broader equities. Freeport McMoRan Copper & Gold(KGC) was slipping 2.55% to $57.62 while New Gold(NGD) was falling almost 5% to $5.89. Other gold stocks Gold Fields(GFI)  and Helca Mining(EGO) were trading at $12.56 and $4.94, respectively.

Market Vectors Gold Miners ETF(GDX), a basket of large-cap miners, rose 14.3% in the second quarter while the popular gold exchange-traded fund, SPDR Gold Shares(GLD)  surged 10% and now holds a record of 1,320 tons of gold.

This article has been republished from The Street. You can also view this article at
The Street, an investment news and analysis site.


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