This morning gold did the unthinkable and fell below the support line at the 1200 price to trade at 1199.25 giving up $12.35 in the Asian session. Gold fell to its lowest since August 2010 and is on track to record its worst quarter since at least 1968 on persistent worries over the US Federal Reserve’s plan to wind down its monetary stimulus. Bullion has taken a beating since the beginning of last week – down 15 per cent or over $200 an ounce – after Fed Chairman Ben Bernanke laid out a strategy to wind down the bank’s $85 billion monthly bond purchases on the back of a recovering economy.
US Federal Reserve Chairman has said that any pruning of the $85-billion monthly program to boost economy will depend on various economic parameters that will emerge in the next few months. However, the emerging data could lead to whetting down of the stimulus package. The recovery of gold by over $12 means Asia finds value in buying at current levels. But there should be little doubt that the bears have their grips firm on the precious metal and it could take a while before they loosen. If US GDP numbers have held promise to stop gold from falling on Thursday, the jobs data have given a stick to nay-sayers to beat gold. The question is how long physical buying can continue, particularly in the face of investors and hedge funds fleeing the yellow metal. The lower prices have failed to boost physical demand in Asia, traditionally the biggest buyer of gold, and investors have continued to flee exchange-traded gold funds. Gold futures extended its decline below $1,200 per ounce in late electronic trade on Thursday, as soothing talks from Federal Reserve officials boosted other markets, but failed to stem a stampede out of gold. Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 969.5 tons, as on June 27. Silver holdings of ishares silver trust, the largest ETF backed by the metal, increased to 9,905.88 tons, as on June 27. Investors are shedding the commodity in record numbers. ETF have witnesses one of their busiest days in recent history.
The ICE dollar index, which measures the US unit against six other major currencies, swung to slight gains and losses all day. The index fell slightly to 82.901 in recent trade compared with 82.964 on late Wednesday. This morning the dollar is trading well into the 83.00 price level at 83.11. The stronger the US Dollar the weaker gold. Today’s economic calendar releases will not be important enough to move the commodity or currency markets, with the marquee event being the Michigan Consumer Confidence report due later in the day. With the month drawing to its close gold will show the largest monthly drop in recent times.
Silver has diverged from gold this morning gaining over 19 cents to trade at 18.748 as investors take advantage of the low price to buy up on the cheap. Also assurances from the People’s Bank of China helped give industrial metals a boost. Copper is trading flat this morning also at 3.048. Concerns over a credit crunch and economic growth in China also weighed on investors. China’s central bank is squeezing funds out of the money market, forcing banks to borrow money at historic interest rate levels. This morning the PBOC said that it would make sure that credit is available to the banks, this is a move to rein in the famous “shadow” banks.