Despite mounting Tensions in Ukraine, traders are selling gold. The yellow metal fell to its lowest price for five months in yesterday’s early trading before levelling off to $1312 up $3 since yesterdays close.
But it appears as though traders are ignoring the drama unfolding around the Crimea Peninsula and concentrating on economic data instead. In Asia, early trading was concentrated on sales, a cue from Wall Street yesterday, but New York traders pushed prices back up later in the day.
Sales of physical gold have fallen in China due to the weakness of the yuan, but the Central Bank of the People’s Republic continues to buy huge quantities of the yellow metal. Last month they imported 112 tonnes of bullion, a 26% rise on January.
But the Chinese economy is in slow-down and policy makers are expected to “take some measures to support the economy.” Defaults on metal payments to creditors a couple of weeks ago set alarm bells ringing over the frailty of the economy as a result of the country’s unregulated shadow bank.
It has been a common practice in China to use metal alloys as a hedge against loans, but since the default has left the country on the brink of a credit crunch, the central bank has issued a warning to companies that they will not receive any bail-outs.
Meanwhile, Wall Street is looking for gold bargains and technical buying this afternoon pulled bullion back to around the same closing price as yesterday. US equities also enjoyed a good day after yesterday’s selling spree although the dollar fell flat again.
Technical data points towards an upward trend
Long term averages on gold suggest an upward trend and a follow through in currency supports precious metal indicators. The dollar was up on the back of encouraging consumer data which suggest consumer confidence is returning in the US, but the Japanese yen and the Euro dropped.
The spirits of investors were lightened after heads of state emerged from a meeting closer to reaching an agreement despite Russian troops shooting dead a right-wing Ukrainian paramilitary this morning.
The US Fed’s announcement that they will end the bond-buying stimulus later this month and increase interest rates in early 2015 has also panicked investors into the US equity market.
The scurry seems a bit premature, but the news has flattened the yield curve which suggests investors do not have faith in long-term growth. This supports predictions of a credit crash which analysts say is inevitable.
Investing in gold
It is a great time to buy gold now prices are falling. Although the slow-down in the Chinese economy and political pressure in Eastern Europe is holding prices up, the yellow metal could fall beyond the $1300 barrier in the coming weeks.
Many analysts still predict gold prices will fall closer to the $1000 per troy ounce mark, but we will have to wait and see what happens in the Ukraine in the coming weeks before traders will now which direction the gold charts will flow.