Is Gold’s Rally Temporary?

US markets were redder as investors continue to hit the sell button for a raft of reasons, including concerns on global economic growth and continued conflicts and Ebola fears. The S&P 500 slumped 1.6% to 1874.82, with the index having its worst three-day performance in three years. The Dow Jones gave up 1.4% to 16,321, while the NASDAQ fell 1.5% to 4214. The Dow is now at a six-month low.
That said, the U.S. big cap stocks were due for a significant shake-out as the run up over the past few years has been spectacular. Where the index moves from here will depend in large part to how well U.S. companies have performed against earnings estimates in the reporting season – this week banking stocks are due to report quarterly earnings. U.S. Federal Reserve officials on the weekend commented that the threat from an international slowdown may lead to rate increases being delayed.

The decline of the US dollar and global equities has seen gold the prime benefactor. Gold continues to benefit from a faltering global economy, with the yellow metals rising 0.7% on the Comex to $1230 an ounce. Just as many investment bank analysts like Goldman Sachs and Morgan Stanley counted gold out, back it comes. During the session gold peaked at $1238 an ounce. Most believe that this will be a short lived run on gold and precious metals are expected to return to their down trend.

Little more than a week ago the price had dropped to a 15-month low of $1,183 per troy ounce, but the metal has benefited from the decline in the US dollar following minutes from the last Federal Reserve meeting. Markets are continuing to react from news later week from the IMF lowering global growth but making note that the eurozone is headed towards a recession. Rating agency S&P recently lowered France’s outlook to “negative” with talk among commentators and politicians of a deflationary crisis in the eurozone region.   They highlighted its recent rise as a source of concern for the US economy, concerns that have seemingly ended the prospect of an early rise in interest rates especially with the growing fear of another slide into recession in Europe.

Gold also received a boost from the re-opening of the Chinese markets following the Golden Week holiday, but there was renewed selling of holdings in SPDR Trust, the largest of the gold-backed exchange traded funds.

Industrial metals including silver and copper are trading in the green after surges in Chinese exports were noted in yesterday’s data release.  Silver climbed to 17.487 up by 142 points this morning while copper is at 3.044 just off last week’s floor at 2.99. Copper and nickel climbed as faster exports eased concern that economic growth will fade in China. Copper climbed 0.2% to US$3.0405 a pound on the Comex in New York overnight with the metal now on a three-day win streak, something it hasn’t achieved in over three months.