247Bull.com Editor: It’s impossible to know when, or at what level, gold’s recent decline will come to a halt. However, for those that believe the bull market will resume sooner or later, but want to protect against any potential downside in the price of gold (particularly in US dollars), a hedging strategy that utilizes put options could be explored. Such a strategy means that long-term investors can keep hold of their physical metal whilst also being able to sleep at night.
After touching a one-week high yesterday, gold drifted lower Wednesday, ending London’s morning trading around $1580 an ounce, more-or-less where it started the week, while stocks gained and government bond prices fell.
Gold in Sterling was also trading in line with last week’s close at around £1032 an ounce, while gold in Euros fell to €1206 an ounce, just under 1% down on the week so far, as the Euro touched a one-month high against the Dollar following news that Ireland and Portugal may get more time to repay bailout funds.
Dealers in India meantime reported slow buying Wednesday, while the world’s biggest gold exchange traded fund, SPDR Gold Trust (ticker: GLD), continued to see outflows Tuesday. The volume of gold bullion backing GLD shares ended yesterday at a new 21-month low of just over 1200 tonnes.
“Sentiment amongst some investors has become less bullish for gold,” says this month’s Metal Matters from bullion bank Scotia Mocatta.
“Rising equity prices to new record highs have increased the opportunity cost of holding gold as an investment and that has caused some rotation out of bullion and into other asset classes. With some financial institutions also seeing the gold price as in a bubble and marking down their forecasts, it is not surprising that sentiment amongst some investors has turned less bullish.”
Analysts at US investment bank Goldman Sachs today cut their 12-month gold price forecast from $1550 to $1390 per ounce, and advised clients to sell gold short using futures contracts.
Deutsche Bank and UBS both cut their average gold price forecasts yesterday, to $1637 and $1740 respectively. So far this year gold has averaged just over $1626 per ounce, based on afternoon London Fix prices.
President Obama is due to unveil his 2014 budget later today, with the White House saying he has come “more than halfway towards the Republicans” in an effort to secure a deal.
Obama’s budget is expected to ask for $580 billion of new tax revenues over the coming decade, including a minimum tax on those earning more than $1 million a year – the so-called Buffett Rule – which is opposed by Republicans.
Obama is also expected to announce a change in the way inflation is measured when calculating payments under programs such as Social Security, adopting the so-called chain-weighted consumer price index, which has tended to be slightly lower than the standard CPI.
Whereas the standard CPI measures the changes in prices of a predetermined basket of goods and services, the chain-weighted measure allows the basket to change to reflect changes in consumer buying habits, in particular substitution out of goods and services that have risen in price.
The Federal Open Market Committee meantime is due to publish the minutes of its latest policy meeting later today.
Over in Europe, Ireland and Portugal could get an extra seven years to repay their bailout loans, according to draft proposals drawn up by the so-called troika of the European Commission, European Central Bank and International Monetary Fund, Reuters reports.
Support for granting Portugal more time however is likely to depend on its government plugging a €1.3 billion budget gap that arose after earlier proposed savings were deemed illegal, the newswire adds.
China, the world’s second-biggest gold buying nation last year, recorded an $884 million trade deficit in March, official figures published Wednesday show. Year-on-year export growth fell to 10%, down from nearly 22% a month earlier, while imports rose by 14% from a year earlier.
“A depreciating Yen has weakened the competitiveness of Chinese products in Japan,” says Zheng Yuesheng, spokesman for China’s customs administration.
The Yen traded close to four-year highs against the Dollar Wednesday, just below the ¥100 mark, while gold in Yen was also near its highest level in over 30 years.
The Bank of Japan last week promised to aggressively boost its monetary stimulus program as part of an effort to raise the rate of inflation in Japan.
Elsewhere in Asia, South Korea has raised its alert level to “vital threat” following signs that North Korea is preparing for a missile test.
Ben Traynor | BullionVault