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Lower Gold Price as Stocks Gain

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Lower Gold Price as Stocks Gain

generic-gold-barsGold prices were slightly lower again on Wednesday morning. Spot gold fell by about 0.6% to $1,220/oz, notching a fresh 7-week low. Much of the downward momentum for the precious metals is being exerted by crude oil and equities trending in the opposite direction.

Meantime, silver traded 5¢ higher at $16.35/oz, diverging from the rest of the precious metals. Platinum was also 0.4% lower, sliding just below $1,000/oz, while palladium recovered from as much as 1.7% into the red to trade just $3 per ounce lower near $530/oz.

Stocks Advance

rising marketThe main factor that seems to be driving the metals lower is a resurgence for the stock markets on Wednesday. Not only do gold and equities generally trend in opposite directions, but after shedding some $75 per ounce so far in May, falling gold prices are signaling that many traders are cashing out profits and pouring the money into stocks. U.S. indices opened solidly higher in morning trading while the global stock markets were firmly in the green almost across the board. Japan's Nikkei 225 as well as the benchmark EURO STOXX 50 each advanced about 1.5% while Hong Kong's flagship Hang Seng index closed 2.7% higher.

The jump for European shares is largely attributable to Greece reaching a new debt deal with its creditors totaling €10.3 billion ($11.5 billion). The Greek government even secured some favorable concessions from the IMF in the process. The country's 10-year bond yield settled below 7% for the first time in more than 6 months while European equities are poised to post their best two-day gains over the past two months of trading.

oil-rallyElsewhere, the rise in equities is a matter of stocks following the oil market higher. Crude oil prices have enjoyed a recent rally, pushing both WTI and Brent crude above $49 per barrel. The sector saw more upward pressure from the news that Royal Dutch Shell (RDSA) is laying off 2,200 employees. Even as these two benchmarks approach $50/bbl, however, most experts believe a supply glut will continue to bring prices back down, rendering the oil rally temporary.

Outside Developments

The dollar was mostly steady on Wednesday, trading flat at 95.5 on the DXY index. The greenback has also been firmer lately—in part because China has again fixed the yuan lower. This is the weakest the Chinese currency has been against the dollar since March of 2011. A stronger dollar is generally bearish for gold.

google_searchIn tech news influencing the markets, controversy is swirling around the raid of Google's headquarter facilities by the French government in connection to tax evasion allegations. This is far from the first time that Google has faced such scrutiny into its tax practices from regulatory authorities in Europe. When it comes to technology in finance, it's worth noting that a computer trading program deployed by the firm XTX Markets cracked the Top 5 ranking in the currency trading market in terms of market share, the first time an electronic trader has leapfrogged one of the big banks in this market.

Technical Outlook

With gold prices stuck in a downward pattern, the resistance and support levels appear to be spreading out. Support has been seen at $1,220/oz and $1,210/oz below that, with a strong baseline at $1,200/oz. Meanwhile, resistance levels seem to follow the same pattern at $1,230/oz (the overnight high), $1,240/oz, and $1,250/oz as a strong resistance level for the near-term.

 

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.

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