Gold Losing Safe Haven Appeal

February gold futures took another hit on Wednesday, but managed to hold Tuesday’s low. The market is at its lowest level since late August despite a similar decline in the U.S. Dollar. Typically, commodities strengthen when the dollar weakens, but this hasn’t been the case with gold lately. 

It’s taken a combination of events recently to dull gold’s appeal as a safe haven market. Improvement is the Euro Zone is one factor as well as the progress being made in the negotiations to avoid the so-called “fiscal cliff”. Money has also been flowing into equities at the expense of gold. Some analysts believe that the sell-off in gold probably means that interest rates are nearing a bottom.

 The EUR/USD continued to grind higher overnight. With U.S. politicians apparently making progress towards a compromise over the “fiscal cliff”, the dollar is weakening. Additionally, news that Greece received an upgrade from Standard & Poor’s also helped to underpin the Euro. 

The GBP/USD surged on Wednesday as it neared the September 21 top at 1.6309. Besides the weaker U.S. Dollar and greater appetite for higher yielding assets, the Forex pair received support following the release of last month’s Bank of England Monetary Policy Committee minutes. 

Although the minutes show that the economy is expected to contract in the fourth quarter, they also reveal that the MPC believes that the problems in the Euro Zone are subsiding. At the last meeting, the committee voted 8 to 1 to leave asset purchases unchanged. This means that the committee may wait until February after it has a chance to digest the January data before deciding whether to allot additional funds toward asset purchases. 

February crude oil caught a bid today on the weaker dollar and optimism over a resolution to the U.S.budget problem. Technically the market remains rangebound, but an avoidance of the U.S. fiscal cliff could trigger enough short-covering to drive the market to $90.00.