Gold investors are just not feeling the love, once again left to wonder why gold prices are going down.
The yellow metal dipped again Thursday, with gold for June delivery ending down $10 at $1,386.10 an ounce. It was the sixth consecutive trading day of declines and marked a four-week low for the metal.
With equity markets continuing to log record highs, and economic data showing some signs of improvement, safe haven gold looks nothing like its moniker.
Fueling gold's recent rout is not one thing; it's a combination of things.
Here's why gold prices are going down this week.
Why Gold is Down- Stronger Dollar: Of late, the U.S. dollar has jumped against other currencies. On
- Record Rallies: Global stock market rallies have lured investors from gold.
- Muted Inflation: Gold selloff was stoked Wednesday when a U.S. Labor Department report
- Money Morning:
Three Reasons to Buy Gold Stocks Today - Money Morning:
In Gold, Not Cyprus, We Trust - FOX Business News:
Dow Logs Record Close for 20th Time in '13 - MarketWatch:
U.S. wholesale prices fall sharply in April - Kitco:
Gold Ends Lower, But Up From Daily Lows, Bears in Control
Wednesday, the greenback hit its highest level against the euro since early April.
The U.S. Dollar Index, a measure of the dollar against a basket of major currencies, has climbed 5% year-to-date--a major move in currency terms. And, since gold is priced in U.S. dollars, it has become appreciably more expensive for foreign investors.
Money Morning Global Resource Specialist Peter Krauth explains, "The U.S. dollar is a continuing headwind for gold, and virtually all commodities for that matter, thanks to its recent surge. I think one main reason is the strength in U.S. stock markets. Likely, foreign investors, both retail and institutional, are jumping on this bandwagon, and buying U.S. stocks.
"That requires U.S. dollars," Krauth continued. "So they first need to sell their currencies to buy dollars, and then put them to work in the markets, creating extra demand for U.S. dollars. As well, a cascading Japanese Yen has some looking for cover under the greenback."
The Dow Jones Industrial Average on Wednesday posted its twentieth record-setting day of 2013, and the Standard & Poor's 500 Index finished at its fifteenth fresh high for the year. Meanwhile, the Nasdaq is trading at lofty levels not seen since October 2009.
Yet, even as benchmarks march towards resistance levels, bulls maintain equities still have upside.
Citigroup Inc.'s (NYSE: C) top equities analyst Tobias Levkovich remains in that camp, but warns of retracement.
"We would expect some pullback during the summer as fears of a paring back by the Fed, European economic disappointment and a potential debt ceiling fight in the (U.S.) come together," Levkovich wrote in a note to clients.
showed inflation (government-reported, that is) remains tame.
The producer price index, which measures price changes before they reach consumers, dipped in April for the second consecutive month as the cost of gasoline and vegetables fell sharply. The 0.7% read marked the biggest drop in more than three years.
Some economists say wholesale prices may fall further as declining prices for many commodities work their way through the supply chain. Slowing manufacturing could also drag prices lower.
However, lower wholesale costs don't always translate into lower prices. While companies modify prices for several reasons, they rarely cut them unless demand wanes or competition increases.
The Golden ConstantAs the old adage goes, "Gold takes the escalator up and the elevator down."
Indeed, on April 15, gold plunged 9%, to $1,360.60, its steepest drop in some three decades. Over the next three weeks, the precious metal tacked on about $100 amid frenzied buying of jewelry, coins and physical gold at prices not seen since early 2011. But the upward momentum was short lived.
Down 17% year-to-date, Krauth cautions "the worst may not yet be over," adding "mind your trailing stops."
With that in mind, stop to consider gold's pause follows 12 consecutive years of unbroken gains.
And while inflation has been slow to materialize, the ongoing liberal money printing at global central banks is sure to drive demand for gold as an alternative to paper currencies, eventually propelling gold higher-much higher.
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