Gold Prices About To Fall From Peak

Gold prices eased to trade at 1248.90 down close to $3.00 in the Asian session. Over the past days gold has been able to maintain its prices as traders focus on the Federal Reserve and its possible interest rate increase next year. The elevated price is artificial and will most likely return to its down trend witnessed just weeks ago. Silver is taking cues from gold and trading in a tight range between 17.25 and 17.50. Palladium and platinum diverged, with platinum easing $1.65 following gold as the price falls to 1278.75 and palladium gained $1.30 on stronger automobile sales. Palladium is trading at 777.60 boosted by some better than expected global data over the past few days. Chinese industrial production and GDP beat expectations and this morning Japanese exports printed higher than forecast. In the US session on Tuesday US home sales printed better than forecast.  Gold rose to a six-week high at above $1,250 an ounce on Tuesday, lifted by broad-based commodities gains and concerns over an economic slowdown in China.

Gold is traditionally considered as a safe bet against inflation and investors bet on this asset class when they fear that inflation will go up. It is also the best safe haven perceived by investors across the globe. One potential explanation for this rationale is that while government policy -low rates, quantitative easing, and big deficits- looks inflationary, the economic environment deflationary. The US economy has been the prime source for any reaction in the gold prices and the economic optimism is evident from the Fed’s confidence that labor market and housing market is gaining traction. Rising equities in the US coupled with the rising consumer confidence is also denting the appeal for the yellow metal.

SPDR gold trust, the world’s largest gold exchange traded fund gives a good indication to the investors about sentiments in the yellow metal. Investors have been liquidating their gold holdings from the trust as seen in the graph above indicating waning interest in the asset. Gold holdings have constantly been declining the last couple of years.

Market sentiments were muddled yesterday following key economic releases from China. Amidst lingering worries over global economic growth, 3Q GDP data from China, which was better than anticipated, had provided some relief to the market. However, the world’s second largest economy grew at the slowest pace since the first quarter of 2009. A mixed trend was witnessed in the base metal segment. Sentiment in copper remains weak as one of the most sensitive metals, prices react quickly to global moves. Copper is trading at 3.020 down by 8 points this morning after climbing on Tuesday showing its biggest gain in weeks.