Gold Dips Below $1,300/Oz as Macro Fears Mounting

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Gold prices settled at a seven-week low Tuesday as traders dealt with a number of seemingly bearish news items. In addition to the obligatory concerns related to the current mess in D.C. via the government shutdown, technical levels in the metal and some news out of India also weighed on commodities traders. Spot gold fell more than 3 percent to as low as $1,283.54/oz, the lowest level since August 8th. U.S. gold futures for December delivery settled $40.90 lower at $1,286.10/oz. The SPDR Gold Trust ETF
GLD
closed the session at $124.59, down 2.8 percent. Gold falling below an important level at $1,300/oz likely caused technical traders to step in and cut losses. Gold prices have fallen significantly year to date, from a high near $1,800/oz at the beginning of the year. Retail investors seem to have given up on the idea inflationary pressures in the U.S. economy are anywhere on the horizon. Inflation is usually a big driver of demand for gold, as investors look for a safe haven to protect their principal. Despite the unprecedented asset purchasing (read: money printing) by central banks worldwide -- led by the U.S. Federal Reserve -- economic data seems to indicate little or no inflation in major world economies. The government of India, the world's largest importer and consumer of gold, has attempted to curb demand for the metal in the country through several laws and tariffs passed this year. Most recently on Tuesday, Indian regulators -- for the third time this year -- raised the import tariff value for gold. India allows gold imports only through some banks and state-backed and private trade agencies. As of last month, the central bank stopped extending the credit facility for gold imports via banks. All this is an attempt by the Indian Government to reduce the nation's current account balance. Government spokesmen have been on record recently, suggesting Indian officials are ready to take further action, if necessary, to limit the amount of gold imports into the country. While this news seems bearish for the outlook on gold prices, there are some who believe there might be a light at the end of the tunnel. In a recent interview with The Gold Report, Don Coxe, a portfolio adviser to BMO Asset Management, said he believes things may start to look more promising. “I'm a bull in the long term because I believe it's not a question of if but when all this money printing eventually comes to haunt us. Gold as an asset class is so tiny in relation to the vast expansion of money around the world.” Coxe believes the relationship between gold prices and economic strength has changed; the assumption gold performs well in tough economic times no longer applies. Rising inflation, if kept in check, would be an indicator of strength in world economies, and still a demand support for gold. Additionally, if central banks are unable to reign in inflation upon a return, the demand or gold would increase even more. Elsewhere, a research note issued by Citigroup strategists on Monday indicated most miners are facing production costs that are at or exceed gold's spot price. This would lead to gold producers cutting capex and other costs, and thereby reducing gold production and output. As the worldwide supply and availability of gold decreases, this would cause upward pressure on gold prices.
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Posted In: NewsFuturesCommoditiesMarkets
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