Gold Roundup: February, 2014
Gold started February on a high note as it extended the first monthly climb since August. Declining equity markets boosted demand for haven assets, offsetting a slowdown in physical buying across Asia during the Lunar New Year. The on-going uncertainty over a global economic recovery, despite the obvious uptick in the U.S. economic outlook, remains to be the missing jigsaw puzzle piece in determining gold price trending in 2014. More trouble in emerging markets could increase gold's appeal as a safe haven. The following is a weekly breakdown of gold activity during February:
Week 1: 3rd – 7th February
Gold was little changed earlier this week with much of the focus being on developments in the emerging markets where the U.S. economic growth and the Federal Reserve's move to taper stimulus have caused capital outflows. Although global equity markets were expecting to see more turbulence as February progresses, gold is expected to remain fairly resilient for a little while longer. Physical demand in Asia helped bullion to rebound from a six-month low on Dec. 31, when prices capped the biggest annual drop since 1981.
Gold prices retreated earlier in the week, but on Tuesday they held gains to extend the first monthly advance since August as concern that global growth may be faltering sent equity markets lower and boosted demand for haven assets. Midweek, gold stayed on track and held a decline as a rebound in equity markets damped haven demand amid the slower physical purchases during the Lunar New Year holiday. On Thursday, however, gold retreated once again, falling from the highest in over a week as gains in equities and emerging-market currencies slowed demand for alternative investments. Bullion for immediate delivery traded at $1,255.67 an ounce from $1,257.92 on Wednesday when prices reached $1,274.74, the highest since Jan 27.
As the week drew to a close, gold nudged higher with investors placing bullish bets ahead of Friday’s anticipated US jobs report.
Week 2: 10th – 14th February
Gold edged higher earlier this week, rising to a two-week high on speculation that the Federal Reserve would slow the pace of its stimulus tapering after a weak U.S. jobs report raised questions over the state of economic recovery. Gold extended its gains in trading following Janet Yellen’s testimony on Tuesday with the government currently buying $65 billion in bonds each month to stimulate the economy, down $20 billion from its 2013 pace. The metal hit a three-month high of $1,293.44 on Tuesday, before closing, up 1.3 percent.
Midweek, gold gave back some of its sharp overnight gains as stocks rallied, but was still trading near its highest in three months on assurances from Janet Yellen that there would be no abrupt changes to U.S. monetary policy with an emphasis on continuity with the policy approach taken by her predecessor, Ben Bernanke.
On Thursday, gold topped $1,300 an ounce, marking the highest close in more than three months as a larger than expected fall in January U.S. retail sales, as well as the rise in weekly jobless claims earlier in the week, helped fuel weakness in the dollar and lured investors to the perceived safety of the precious metal.
Overall, gold ended the week on a high note, generally regaining favour with investors. Having rallied 5 percent over the past two weeks, gains also looked set to continue in the short term driven by a strong technical picture. Gold managed to break through and hold above some key resistance levels over the past few weeks, holding above $1,300 and looked set to post its biggest weekly gain since October.
Week 3: 17th – 21st February
Gold prices climbed 4.1 percent last week, the biggest increase since the period ended August 16. Prices hit a three and a half month high on Monday as fears over U.S. economic growth, following a series of disappointing data, sent the dollar to a six-week low and lifted demand for the metal. Prices rose by 0.9 percent to $1,330.03 an ounce, the highest since Oct. 31, and traded at $1,326.25. With sentiment towards gold appearing to have turned around, the upcoming data-heavy U.S. schedule later in the week looked likely to drive gold higher if releases, including the closely-watched housing and inflation numbers, turned out to be below forecast. Forecasters warned that the rally may be capped around $1,350.
Midweek, gold slipped and on Wednesday came off 3-1/2-month highs hit in the previous session as investors reaped profits and physical buying subsided. Worries about global economic growth still continued to underpin gold's safe-haven appeal and technical charts indicated that the metal was set to rise.
Gold slipped on Thursday as the dollar firmed after minutes from the U.S. Federal Reserve policy meeting indicated support for continued tapering of its stimulus. The tapering, which highlights a recovery in the U.S. economy, is expected to diminish gold's investment appeal as a hedge against inflation. Gold reached $1,314.50 before slipping to $1,309.85, down $1.40. Gold edged down again on Friday, pressured by a firmer dollar but was still on track for its third week of gains as investors eyed a patchy recovery in the global economy.
Week 4: 24th – 28th February
Having ended the previous week on a high note, gold headed towards its fourth week of gains as concern of prolonged political unrest in Ukraine continued to raise fears of a sovereign default and fuel demand for safe-haven assets. Adding to gold's appeal this week were fears that U.S. data releases would miss expectations as the recent extreme winter weather continues to stall economic activity. Further evidence of a deepening contraction in China's economy, which dropped to a seven-month low the previous week, looked set to provide another boost. These factors combined have generally helped put the luster back on gold for many investors.
Gold prices eased on Monday but still managed to stick close to three-month highs, thanks to a bumpy patch of economic data that has kept traders coming back to the precious metals in recent weeks. The week ahead presented a similar picture as traders continued keep an eye on revised U.S. economic-growth data, as well as durable goods orders and consumer confidence.
On Tuesday, gold relented, pulling back from its previous lofty levels as investors continued to ride the precious metal in the face of persistent economic question marks and a tenuous geopolitical climate. Gold eased 0.2 percent to $1,334.45 an ounce after rising as high as $1,338.60 on Monday. Market observers noted that gold’s resilience has been somewhat surprising. It has dipped off a few times but these dips have been met by some good buying, and a lot of the large selling that was evident last year seems to have disappeared. This may, however, be explained by a move to safety ahead of economic numbers in the coming weeks that some expect to be weak as well as uncertainty in Ukraine, Venezuela and Egypt which has drawn investors to gold.
Midweek, gold held steady around $1,340 an ounce, close to a four-month high hit a day earlier, ending Wednesday with a loss to close back below $1,330 an ounce. This was following better-than-expected monthly new home sales figures which helped lure investors to the stock market and U.S. dollar and away from precious metal.
On Thursday, gold extended a decline from the highest level in 17 weeks as U.S. housing data that beat estimates supported expectations the Federal Reserve will keep to its plan to reduce stimulus. Bullion for immediate delivery fell as much as 0.4 percent to $1,325.27 an ounce, then climbing to $1,345.46, the highest level since Oct. 30, before ending 0.8 percent lower as a report showed new home sales in the U.S. rose to a five-year high.
Gold ended the week on a high as concern that the U.S. recovery may be faltering and unrest in emerging markets continues to boost demand for a store of value. Analysts also expect the ongoing high level of gold demand in China will continue to serve as a key crutch for the gold prices in the coming months.
Summary
Overall, gold has risen more than 9 percent so far this year as concerns over economic growth continue to boost its safe haven appeal, although prices are still well below the all-time high of around $1,920 an ounce touched in 2011. Market watchers remain divided over the prospects for the precious metal with some analysts forecasting gold to fall to $1,050 over the next 12 months. The short-term drivers seem supportive for gold and the technical picture is also looking more optimistic with people looking to buy on dips, but overall, some negativity still remains in the medium term as the U.S. economy is expected to recover and the dollar to rally.
It is, perhaps, no coincidence that the recent gold rally has raised concerns with some analysts who have observed three possible warning signs; a crash in China, the arrival of deflation and a fresh recession in the developed world.
Whatever the outcome, gold has been more often right than wrong in the past and cannot be ignored now. Analysts say that the financial markets have not run according to the script so far this year and, gold, having experienced its worst slump in three decades in 2013, is now rising fast again. Although there may a perfectly innocent explanation for this, the rising gold price could be an early warning sign of big trouble ahead. China, with its massive buildup of credit and its super-charged growth is starting to slow, has been cited as a key factor. If money heads for the exit and the economy starts to get shaky, Chinese investors will switch into gold as their traditional safe haven which will make a big impact on the price.
As far as deflation is concerned, figures released on this week showed consumer prices dropping at their fastest rate since records began. Falling prices are partly an indicator that the economy is in trouble and a possibility that the European Central Bank will be forced to launch quantitative easing on a massive scale to try and stop prices collapsing and taking economies down with them. Either is certainly going to send gold upwards in price.
Finally, there are already signs of slowing growth everywhere, from weak jobs growth in the U.S., to turmoil in the emerging markets. The road to recovery will be a bumpy one and the gold price may well already be forecasting that. Gold has a long track-record of warning of trouble ahead in the global economy. It has usually been right in the past and so the outlook may be much less secure than the market assumes.
Gold ends February heading for a second month of advance, the longest run since August.