Going by trends in the hedge-fund world, the interest in gold is declining lower and lower. In the middle of a potential euro zone crisis prompted by Greece’s efforts to avoid austerity, speculators are abandoning gold, a commodity that is typically viewed as a safe haven in the face of political and economic uncertainty. According to data from the U.S. government, money managers have drastically reduced their net-long gambles on the metal.
Gold Fever Cools Down as Investors Retreat From the Metal
Gold’s appeal as a safe haven for wealth is progressively declining against a background of historic global valuation of equities and a stronger dollar. In the past week, the market cap for stocks reached a record high of $6 trillion as the dollar’s value was at its highest in more than a decade.
Jack Ablin of BMO Private Bank said, ‘We are still negative on gold for the long term. I look at this as insurance. If nothing happens, an investor should expect to lose money on it. Mostly, nothing happens. I think equities are more attractive as risk assets.” Albin’s BMO Private Bank based in Chicago is in charge of an estimated $66 billion.
In the week that ended February 17, gold’s net-long position dropped by 18% down to 110,164 option and future contracts, data from the U.S. Commodity Future Trading Commission showed. This was the longest and third decline in a row since last November.
On the New York Comex, the value of futures declined by 1.8% and tumbled down to $1,204.90 in the week ending February 20.
Against a background of emergency talks by euro-zone finance ministers, which resulted in a deal to continue providing aid to Greece, gold was not attractive to many buyers. Exchange Traded Products (ETPs) did not change much globally and stood at 1,671.8 metric tons.
Gold prices have dropped by 29% in the last two years. This is the first time prices have slumped in a row since 1998 against a growing US economy and robust equities. Since the start of February, futures have dropped by 5%, the first monthly slump in a row since October.
Federal Reserve minutes for January indicate that some legislators have advocated keeping interest rates as low as possible for the long term. Legislators referred to the turmoil in Ukraine and Greece, slow growth in wages and a stronger dollar as good enough reasons for pushing back the interest rate increase.
So far, the allure of gold continues to be in the dumps due to higher costs of borrowing given that gold typically provides returns when its prices gain.
Adrian Day, president of Maryland-based Adrian Day Assest Management said, “Due to the drop we’ve witnessed this month, I would definitely go bullish on gold. The Fed minutes were very positive. The longer the Fed goes on, the harder it will be for them to raise rates as they are increasingly waiting for the perfect conditions.”
A strong dollar makes commodities that are dominated by the dollar pricier for foreign currency holders and makes these commodities, in this case, gold, less appealing.
From a technical point of view, gold rallied off key support at the start of the week beginning February 23. This support level results from the merging of November’s 61.8% retracement and January’s 1.618% and is supported by a basic trendline. Even though the bias is toward the downside, this approach may offer a stronger support for the immediate short-term.
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