A weakening US dollar has the tendency to make gold prices soar. However, Gold Futures for the month of December are not painting a glittery picture: prices sharply dropped as investors around the globe are dumping gold in light of an improving US economy. Notwithstanding the positive signs of economic growth, it also starts to dampen the future of gold as a safe haven investment.
Gold prices are headed for the downtrend once again, expected to be well below the 1300 price level. The Asian session saw a 0.80% drop to 1291.75 per ounce. Early on, the value of the yellow metal rose to appreciative levels due to a weaker performance by the dollar; the dollar index was trading with a downward trend by 0.10% and limiting the fall in gold prices. However, it failed to find the needed support resulting from a muted demand from the second biggest gold buyer that is China. Prices falling below the $1,300 mark did not help, either, and only exacerbated the losses.
Gold prices are experiencing downward pressure as positive economic indicators are generated in a series of reports on the US economy. The US Federal Reserve has been on the news lately with their impending plan to taper its Quantitative Easing (QE) once economic growth is showing signs of improvement. In the US session, there were high expectations for the dollar and is trading on the positive which could push down gold prices some more.An increased demand for German factory orders, though, may limit the fall in gold prices.
Market investors are continuing to react to last week’s release of economic data and the Fed’s eventual tapering of its QE program. Both Gold and Silver Futures prices closed lower as a result. The largest ETF backed by Gold holdings of the SPDR gold trust declined to 917.14 tons on August 6. Silver holdings of ishares silver trust, the largest ETF backed by silver, suffered the same fate declining to 10,396.72 tons on August 2. The global gold market is also reacting to the lackluster physical demand from China and India.
Other Precious Metals
Weak global market sentiments, favorable economic US data and expectations on curbing stimulus measures sooner-than-expected are acting as negative factors for gold trading. However, the sharp decrease in prices is also cushioned by a decline in the London Metal Exchange (LME) inventories, combined with the rise in non-manufacturing data from the US. Copper was seen trading at a tight 3.164 range, and Silver at the international market was trading down by 0.52% at $19.618.
As the dollar index continues to strengthen against other major currencies, silver prices may remain weak. Appreciation in the Euro and the increase in German factory orders may increase and limit the fall in silver prices. However, this can be curtailed during the US session as the value of the dollar increases.