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Comex Gold Gets Safety Bid As Stocks Tumble After Weak PMI Report

By Allen Sykora of Kitco News
Monday Febrary 3, 2014 2:14 PM

(Kitco News) - U.S. gold futures rose sharply Monday as the equity market and dollar sagged after a weak manufacturing survey from the Institute for Supply Management.

Gold for April delivery settled after the pit session with a gain of $20.10 to $1,259.90 per ounce on the Comex division of the New York Mercantile Exchange. March silver settled up 28.9 cents to $19.409 an ounce.

“Gold obviously is garnering some strength as a safe-haven asset,” said Dave Meger, director of metals trading with Vision Financial Markets. “That came on the back of the weaker-than-expected ISM data this morning.”

The ISM Purchasing Managers Index reading came in at 51.3, the lowest level since last May, when expectations were for around 56.0. The December reading was 56.5.

“Gold continues to have a reverse correlation with equity markets and today equity markets remain under pressure and some of the gain in gold can be attributed to that,” said a research note from Triland Metals.

Meger said gold extended its early-day gains to sharply higher territory about the same time the stock market turned sharply lower.

Around the time the Comex gold pit was closing, the Dow Jones Industrial Average was down by around 266 points. The euro was up to $1.35153 from $1.34838 from $1.34838 late Friday.

Gold’s gains were accelerated when buy stops were hit around the $1,250 area, Meger said. Stops are pre-placed orders activated when certain chart points are hit.

Some economists have suggested the weak January PMI may be largely the result of harsh winter weather in some of the more heavily populated parts of the U.S. Nevertheless, in the wake of the weak December jobs report issued last month, traders will be scrutinizing data closely to see if the economy hits a soft patch that in turn might prompt the Federal Open Market Committee to consider holding off on a scale-back of the bond-buying program designed to push down long-term interest rates, known as quantitative easing.

“U.S. factory activity was on a steep climb in Q4, but January’s steep drop in the ISM index will raise concerns about the durability of that trend,” said a note to clients from CIBC World Markets. “The drop from a revised 56.5 to only 51.3 in that index is large by the standards of its typical one-month move, and took it miles below consensus expectations.”

The firm said it’s hard to “discern whether it was weather, or simply the high bar set by Q4 activity, that was responsible for this setback,” but nevertheless the data prompted weakness in so-called risk assets.

Other major U.S. reports on the docket this week include the ADP private-sector employment report and ISM non-manufacturing survey Wednesday, weekly jobless claims on Thursday, and the always-important monthly U.S. employment report due out on Friday.

April gold traded as high as $1,266.10, its strongest level since Thursday. A couple of technical-chart resistance points that traders will be watching are the 100-day moving average of $1,276 and the high of $1,280.10 from Jan. 27.

Prior to Monday’s surge, the market had been down around the 20-day average of $1,246.40, in turn not far above the 50-day average of $1,236.70. 

By Allen Sykora of Kitco News; asykora@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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