Investors Taking To Equities Again Leading To The Gold Fall

Latest reports suggest that gold eased on Tuesday, May 07, 2013. This is essentially because its appeal as another investment option faded after the stock markets happened to rise. As for the rise of the stock markets, then it was essentially based on the hope that there’ll be seen a steady recovery in the United States of America as far as the financial condition is concerned. Now again, with the exchange traded funds or ETFs slipping to their lowest and that too over a span of more than 3 years things took on a different turn and the picture turned out quite surprisingly in favor of gold easing this Tuesday.

Now, if one thought that these were the only factors that made gold ease up, then there’s more to the picture actually. There were quite a few other factors that were working towards this and that includes the fact that Britain and Japan were busy exerting pressure after they had been through a pretty long weekend. They then looked forward to assess the comments made by European Central Bank (ECB) president, Mario Draghi on Monday. He had said that the bank would actually be ready to cut the rates further. Now, this cut includes a lot more than normal expectation like the deposit rate. As for the deposit rate again, then not to mention the fact that it already stands at zero.

The speculation that’s doing the rounds is obviously more about how the rates of interest have connection to gold. Actually reports point to the fact that the lower interest rates are usually known to favor gold. This is essentially because they prove to be encouraging for the investors to put their money into non-interest bearing assets. These particular assets could be anything like metal or otherwise. However, if one goes by what the analysts have to say, then it’d be obvious that they believe more in cyclical assets and that includes equities as well. Analysts believe that it’s these equities that look more attractive at the moment.

There’s Karim Cherif, the analyst at Credit Suisse who talks about the news of monetary easing as being one of those factors that’ll continue to provide support to liquidity. This in turn is bound to work in favor of more cyclical assets like stocks instead of the defensive ones like say precious metals. On top of everything else he opines that the technical picture looks pretty weak.

Gold is said to have eased by 0.6 percent and that too to 1,460.60 dollars on Tuesday, May 07, 2013. Reports suggest that this comes after it had risen to a literal 3-week high of 1,487.80 dollars on Friday last. This particular high has been attributed to safe haven buying that had been stimulated by a cut in the rates of interest by the European Central Bank as well as the United States Federal Reserve’s choice to stand by its stimulus program. However, fact of the matter is it failed to hold on to its gains.

The following chart represents the dollar gold price over the last 30 days (chart courtesy goldprice.org).

gold_price_8_may_2013

On a not so positive note, the USB technical analysts went on to say that gold is practically struggling and that too against the important resistance range of 1,469.8 dollars and 1,504.33 dollars which would translate into the 50 percent and 62 percent retracements of the sell off that took place on March 21st to April 16th. In fact, if you took a look at the US gold for June delivery, then it stood at 1,460.40 dollars an ounce which is again down by 0.5 percent.

On the other hand if one takes a look at the shares of the continent on the other side of the Atlantic, then they were on the rise. Yes, the European shares rose with a bolster by better than expected corporate earnings. Nevertheless, the Euro remained under pressure versus the dollar. There’s also the concern of investment in ETFs that have fallen more than 12 percent in 2013.

Yasmine Wilson is a financial writer. She loves writing on finance based topics such as debt, credit, investment, loans, etc. She has contributed articles in different websites also. She’s a member of Debtcc Community.

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