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Weaker Global Equities Still Not Enough To Scare Gold Shorts - Analysts

By Neils Christensen of Kitco News
Friday October 10, 2014 11:03 AM

(Kitco News) - Despite a “risk-off” day in global financial markets, gold is in a wait-and-see mode Friday morning, watching to see if equity prices can stabilize after Thursday’s sharp drop, according to some analysts.

So far the morning has been relatively quiet for North American equity markets, after Thursday’s selloff, which saw the Dow Jones Industrial Average and the S&P 500 Index drop 2% and 2.1% respectively.

As of 10:50 a.m. EDT the Dow Jones was at flat on the day at 16,653 points and the S&P 500 was down 0.47% on the day at 1,919 points; however, North American markets are performing better compared to the price action in Europe and Asia. The German stock index, the DAX, was down 2% on the day. The U.K FTSE-100 is down 1.4% on the day. In Pacific markets, The Australian stock market, ASX fell below 2%; in Tokyo, the Nikkei dropped 1.3% and Hong Kong’s Hang Seng fell 1.6% overnight.

Despite the rise in negative sentiment and weaker equity markets, gold prices have not been able to find any momentum as of 10:50 a.m. EDT Comex December gold was at $1,220.50 an ounce down about $4.80 or 0.39% on the day.

Ole Hansen, head of commodity strategy at Saxo Bank, said that the strength of the U.S. dollar continues to weigh on the yellow metal. He added that despite the drop in equity markets, the short-sellers in gold are still not scared enough to exit their positions.

“In the S&P 500, I think we need to take out the August lows before investors really start to get scared,” he said. “Right now the shorts are still comfortable in their positions.

Hansen added it might be only a matter of time before the S&P 500 drops below the August low of 1,904 as the fundamental picture is starting to look negative.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, added that it is not only equity markets that traders are waiting for. He noted that the risk aversion caused oil prices to drop to a two-year low at $83.59 a barrel and for copper prices to drop below $3 a pound; he added that these weaker prices are deflationary.

Gero added that yesterday’s move by the CME Group to lower margins in precious metals contracts was not even enough to attract new buyers.

“Right now we are just seeing the market even out and traders are waiting to see what happens,” he said. “Between copper and oil, caution prevails.”

According to two market analysts, one reason why gold has not reacted much on Friday is because it has already made significant gains for the week.

Julian Jessop, head of commodity research at Capital Economics, said that gold prices have managed to bounce off Monday’s lows at $1,183 an ounce and are holding well above $1,200 an ounce.

“The week has been generally positive for gold,” Jessop said.

Jeff Nichols, senior economic advisor at Rosland Capital, agreed that it is not surprising to see the gold market take a break after a strong rally Wednesday and Thursday on the back of dovish minutes from the September Federal Open Market Committee meeting.

“The markets are waiting for some fresh news and until we get that they will continue to tread water,” he said.

Weaker Global Equities Still Not Enough To Scare Gold Shorts - Analysts

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