It has been a topsy-turvy day for gold with prices losing $20 per troy ounce only to recover to $1.50 in the red at the time of writing (5.15pm GMT). Despite the US Federal Reserve announcing they will trim the economic stimulus by a further $10m traders are still apprehensive about the security of the equities market.
Economic data released by the Commerce Department in the US earlier today revealed that consumer spending is up by 3.3% from the third quarter of 2013 and business spending jumped from 0.2% to 7%. Whilst these figures are not great they at least show the economy is moving in the right direction.
So why the trader slow-down? Since November, investment banks have been shedding their load of gold and turning their attention to the equity market. It looked as though gold was headed for a prolonged plummet down the price charts until last Thursday when reports revealed an economic slow-down in China.
US influencing gold prices
However, it is data coming from the States that is mostly influencing the purchasing decision for stock market traders. Reports published this week show the US GDP for 2013 is weak compared to the previous year and the employment figures released at the beginning of January were misleading.
It was thought that US employment had enjoyed a 7.7 per cent increase for the first week in January, but the data also included employees who had secured the job in December, but started late due to the Christmas holidays.
However, the most recent figures do show the US job market is strengthening. Reports show a jump of 19,000 more job vacancies have been filled this week which has improved the sentiment on Wall Street during the early hours of trading.
Inflation in Europe
News that the European Central Bank announced it is targeting a 2% cut in inflation across the EU next week has rattled investors. The move will mean that the EU will impact on emerging markets and weaken currencies. The Turkish Lira and out African rand are the hardest to be hit although that is mostly due to political corruption prompting investor to pull out of the respective countries.
It appears that the bad news from the EU has dampened the early enthusiasm shown in New York this morning and has prompted traders to pull back on equities again. They have taken a 0.7% dip today.
Gold is hanging in the balance right now, but with prices hovering around the $1240 mark per troy ounce, the yellow metal still looks like an attractive investment for long-term holders. Eventually gold prices will go up and could break the $2000 barrier during the next bull run.
In the meantime, it seems as though traders are torn between equities and commodities. Despite signs the global economy is recovering, small cracks are still causing investors to tread carefully. Watch this space!
In the meantime, now looks like a good time to invest in gold. Prices will rise at some point and with the global economy destined to come crashing down big time, there is big gains to be made from investing in gold.