The gold price has held the all-important psychological level of $1,200 in early-morning trading on Tuesday, shrugging off the general downturn in commodities sentiment after oil prices hit five-year lows.
Spot gold was last at $1,204.00/1,204.80 per ounce, up $1.60 on Monday’s close and confined to a $9 intraday range so far.
Gold struggled to make any real gains on Monday while investors digested the downturn in sentiment caused by five-year lows in oil prices, which hurts gold by boosting US growth and ultimately the dollar.
Brent crude oil and WTI both slumped to five-year lows in the previous session, reflecting the drop in demand from China, Japan and the eurozone, all of which are struggling economically. Brent crude was last at $65.85 per barrel, after starting the year at $110, while WTI was last at $62.95 a barrel, down from $98 at the start of the year.
The US is the only economy on the path to recovery but growing domestic production of shale oil and a move towards greater fuel efficiency means it is less dependent on imports.
“Oil’s persistent weakness has been a challenge for gold of late considering that the 3-month rolling correlation recently reached the highest level since July last year, but gold has so far managed to hold up well in spite of the pressure,” UBS’ Edel Tully said in a note.
Today’s data flow is quiet so the focus will remain on currency movements to define near-term direction – “we remain in thrall to the currency moves”, Marex Spectron’s David Govett said.
Central bank behaviour, particularly in the face of a slowing world economy and fears over growth prospects in China and Europe, could also influence the market.
“The policy pursued by central banks will have a major impact on investor behaviour, as well as on the price prospects for gold in the different currency regions. Whereas the US Federal Reserve should already be launching its series of interest rate hikes in the second quarter of 2015, central banks in Japan and in the Eurozone are still ‘accelerating’ and are keen to hugely expand their balance sheet totals,” Commerzbank said.
In data already released today, the German trade balance at 20.6 billion euros beat the forecast of 18.1 billion euros, while the French deficit of 4.6 billion euros was as expected.
The US will release its NFIB small business index, Jolts job openings, IBD/TIPP economic optimism and wholesale inventories later. ECOFIN meetings in Europe are also taking place today in Brussels.
Recent fund trends show that there was some short-covering in the gold market last week, while exchange-traded fund (ETF) holdings in gold continued to see inflows.
In the week to December 2, money managers expanded their net long positions in gold by 26 percent to 68,600 contracts, the highest in three-and-a-half months as well as the third weekly increase in a row, CFTC data showed.
In the other metals, silver at $16.42/16.46 per ounce was up 10 cents and trading within a 20-cent intraday range, while platinum at $1,231/1,236 was up $6 and palladium at $800/806 was up $6.
(Editing by Mark Shaw)
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