Wednesday, October 2, 2013

Gold Selloff Catches Some Off Guard

Gold could be losing its label as a safe-haven asset.

Considered a good bet during times of political and economic uncertainty, gold caught some analysts and traders off guard when prices in the spot market slumped over 3% on Tuesday, posting only a small rebound in European trading on Wednesday
“I find that surprising given the timing as we move into an extremely uncertain period over the next two or three weeks,” said Robert Rennie, chief currency strategist at Westpac Bank in Sydney. “There are certainly rumors of fund liquidation in the market.”
Some traders had anticipated gold to benefit from higher demand for traditional safe-haven assets. Market reaction to the U.S. government shutdown on Tuesday was muted, with stocks there rising slightly. Investors pointed to more uncertainty around the chances of a prolonged shutdown hurting the wider economy, or if it threatens a solution on the U.S. debt limit.
Others say the sell off is in line with history, finding a correlation between the length of the shutdown and how much the gold price goes up.
Spot gold prices had touched a record $1,920.94 a troy ounce in September 2011 after Standard & Poor’s had cut the U.S. credit rating following months of debate over raising the country’s debt ceiling.
As of 0815 GMT, spot gold was trading at $1,292 a troy ounce, up $4.50, or 0.3%, from its previous close.
Some analysts said that the current selling in gold has more to do with technical indicators than fundamental issues. Traders usually have predetermined levels programmed in their computers that triggers sell orders when the price reaches a particular level.
The fall in gold prices below the $1,300 a troy ounce mark is “never really good for confidence,” said Stan Shamu, a strategist with IG in Melbourne.
Besides, Mr. Shamu says physical demand, which had helped to prop up prices at times, is missing with the world’s two biggest buyers—India and China—on holiday.
Analysts expect prices could fall, before starting to rise as the Oct.17 deadline to raise U.S. debt ceiling approaches.
source:  wsj


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