After stocks gained overnight due to improving risk appetite on the global markets, the gold price moved just a tad lower in early trading on Friday. This, however, has not dented the appeal of gold as a safe haven. A slew of media reports are continuing to point to gold as the most desirable hedge against potential financial risk.
The spot gold price was a mere $3 per ounce lower (-0.25%) when markets opened in New York today. It held steady at $1,226/oz after falling a bit further, while silver took a relatively larger hit, dropping 28¢ per ounce to $14.93/oz. Platinum prices were just below unchanged at $925/oz.
Some investors have been swayed by the recent modest rebound for stocks. They apparently feel that the risk of losses in equities has abated, or they are simply chasing short-term gains. This has helped push virtually all stock markets around the globe into the green on Friday morning.
As a result, many gold traders are taking profits on their wildly successful positions in gold. Anyone who took out a long contract on gold at the beginning of the month is being rewarded handsomely if they cash in at this point. This has predictably led to a slight dip in the gold price as sellers drive moderate consolidation and enjoy some profit-taking.
Main Drivers for Gold Price
One of the key factors contributing to the slightly lower gold price was the release of fourth-quarter GDP numbers in the U.S. this morning. While experts were expecting a reading around 0.7%, the spinsters found a way to crunch the numbers and produce a 1.0% gain for GDP in Q4. It goes to show how sluggish growth has become the "new normal" when a sub-standard reading like 1% is taken as an encouraging sign.
Two other factors are playing a role in the movement for gold prices: China's position at the center of the global economy, and the U.S. dollar. A meeting of economic leaders from the G20 nations is taking place in Shanghai. Despite recent evidence, the Chinese ministers are insisting that they will not devalue the yuan and will remain committed to sound monetary policy. History tells us to take this claim with a big grain of salt. Nonetheless, it is boosting the morale of equities investors.
The dollar has also been on the rise, detracting somewhat from the performance of the precious metals. The DXY index was 0.66% higher this morning at 97.9 after touching as low as 95.5 two weeks ago. The "better-than-expected" Q4 GDP numbers this morning are also helping lift the dollar.
Right Time to Buy?
Germany's Deutsche Bank is advising its clients that now is an attractive time to buy gold. "Buying some gold as 'insurance' is warranted," the bank said in a note issued on Friday. Despite the yellow metal seeming relatively expensive after two solid months of gains, Deutsche Bank continued, "[w]e would, however, argue that given the plethora of negative deposit rates globally, the holding cost of gold is now negligible in many jurisdictions, and therefore gold deserves to be trading at elevated levels versus many other assets." This makes sense given the lunacy inherent in central banks around the world offering negative interest rates.
From a technical perspective, there is still plenty of bullish sentiment regarding the gold market. In fact, there is quite a bit of crowding into long positions on gold. This build-up of bets on the gold price rising is indicative of a market on the rise. Prominent voices such as billionaire Mark Cuban have been touting gold as a safe way to protect one's wealth, and most observers are inclined to agree with him.
Support for gold prices can be seen at $1,225/oz, while key resistance will be found at $1,230/oz and $1,235/oz above that.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.