Gold Drops On New Economic Numbers

 |  by Michael Locklear

October 15, 2012 – Gold prices fell to their lowest level in two months but still remain near an 11 month high. Investors are still watching to see what Spain’s decision will be concerning a bailout. Spain’s credit rating was lowered on Wednesday by Standard & Poor’s to near junk level, while economic ministers report that a future request for a bailout from the Eurozone will not make any political resistance.

Gold bullion still remains popular among those investors seeking a hedge against inflation as the commodity moves into stronger territory in recent trading, only to drop to its lowest level since early August. Reuters reported on Friday that James Steel of HSBC said, “It needs a little time to find the floor, which in the near term is likely to be $1750, but I don’t see a compelling reason for it to drop below that.” Other analysts point out that the market is taking time to gather itself. They’re still caution among investors as exchange traded products reach record highs. The market may still continue to lose ground as it finds its direction.

Today the gold market saw prices going even lower on the news that September U. S. retail sales rose across the board indicating stronger economic growth in the U. S. Economy. This follows on the news from Friday that US consumer confidence has reached a five-year high and that unemployment numbers continue to drop.

The improving economy has investors worried that the Fed’s latest monetary easing actions may not be as extensive as initially expected. If economic data continues to show improvement the Fed may decide to pull back on its plans for massive monetary infusion.

Today spot price for gold dropped as low as $1730 per ounce which indicates that there is serious concern among gold buyers that the overall economic pictures are improving. Analysts may now have to set a new floor for gold prices in the near future. Market experts now believe that the US economy may in fact be strengthening and that increased stability is on the immediate horizon. Since the price of gold is tied to speculation concerning the health of global economies and currencies these improvements may indicate a future downward spiral for gold prices.

Also in use today China has announced that its inflation is under control and that the central bank does not see a need for monetary easing. Market watchers are still awaiting a decision by Spain concerning its needs for monetary infusion from the European Central Bank. Should Spain decide to ask for a bailout it is likely that this news would further fuel the desire to move into gold as a protection against economic instability. However in the current market profit-taking is the mood of the day. Despite price increases for gold starting in mid-August fueled by speculation concerning a third round of monetary easing coming from the Federal Reserve and the subsequent announcement that indeed the Fed would initiate QE3, gold has now retreated from its early October high of $1795.69 to a new low today.

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