Gold Settles Higher On May 23d – Finds Support From Drop In Dollar

According to recent reports, gold futures ended staggeringly higher on 23rd May, 2013 as the precious yellow metal drew support from the steep decline in the value of dollar and the constant weakness in global equities. Hints and reports of downbeat China and contraction of the stimulus efforts by the US Federal Reserve contributed to the plunge in the stock market in Japan. Gold futures that were set to be delivered in June 2013 jumped $25.40 or by 1.9% and settled at $1,392 an ounce on the New York Mercantile Exchange after it suffered through a 2-session drop of close to $17 per ounce. As per news reports, August gold is perhaps the most active contract, also tacked on 1.8% to end at $1397 an ounce. The gains in the value of this metal are entirely based on “fear” trade, according to a portfolio adviser.

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The experts are also of the opinion that they don’t expect this to last as the stock market mania is drawing a lot of investors away from the precious metal market and this will continue until the US discontinues its $85 billion per month stimulus program which is actually acting as a subsidy for the investors in US equities. The US stocks edged lower on 23rd May amidst the wake of losses in the global equity markets. This was being considered as the worst one-day loss since March 2011. This is nothing but a perfect combination of a falling stock market and a weaker dollar that is pushing up the price of gold. This is not at all surprising as the firm US dollar and rising stick markets have already pushed down the price of gold. A long-lasting recovery is not possible unless heavy ETF redemptions ease.

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It was due to a volatile session in Asia that drove the dollar to plummet sharply against the Japanese currency, with a dollar recently buying ¥101.78. After the drop in Japanese equities, Yen gains came in as investors sought a safe haven in the Japanese currency. On 23rd May, 2013, there was yet another data that was offered about the economic view on the US with the increasingly large number of people who are applying for unemployment benefits. The sale of new homes in April rose by about 2.5% to a seasonally adjusted rate of 456,000. If the value of gold can’t climb above $1500, this could well become a resting point, thereby making a way for lower prices. Right now, gold needs enough panic to move it up and there’s shortage of panic in the US.

Amidst this financial crisis, Ben Bernanke is almost leading the most aggressive economic stimulus in the 100 year history of Federal Reserve and this has been done in an effort to increase growth and reduce the menace of unemployment that is stubbornly hovering around the 7.5% rate since the last 4 years. The policymakers will come to know within a few months whether or not the economy is healthy enough to overcome budget cuts and also allow the central bank to begin reducing stimulus. The outlook of the labor market has shown enough progress since the bond-buying program in September, 2012. Many of these participants indicated that there’s a continued progress, diminished downside risks, more confidence in the outlook before slowing the pace of purchase.

Therefore, with the present economic conditions in the US, there are various ways in which the fluctuations in the price of dollar will make the gold price rise and fall according to the rates. If you’re an investor, you should take into account the bigger picture so that you can take an informed and measured decision in the long run. Apart from the investment market, the debt market is also going through a staggering change with a large number of debtors selling off gold in order to make ends meet. The price of gold entirely depends on that of the macroeconomic factors.

Yasmine Wilson is a contributor of this post. She is a regular finance writer. She has written various posts related to financial topics. To get any solutions regarding debt, please click here.

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