Gold Market Caught In Equity Downdraft; Investors Raising Cash After 400-Point Drop In Dow
(Kitco News)- It’s a sea of red for financial markets Tuesday as investorsare exiting profitable trades in the precious metals markets to raise capitalfor falling equity markets, according to analysts.
Gold is modestly negative on the day, last traded at $1,340.30an ounce, down 0.36% but it is outperforming equities, which is seeing nearly1% declines across the board. According to reports the Dow Jones, down morethan 300 points, could see its worst single-day drop since June 2016.
While many commodity analysts have expected gold to benefitfrom falling equity markets, the selling in gold and silver, in a weak equitymarket environment does not come as a major surprise.
“Right now you are seeing investors raise cash. They areselling gold to make sure they can cover margin calls,” said George Gero,managing director at RBC Wealth Management. “If this were true selling youwould see gold down much lower.”
According to some analysts, rising 10-year bond yields,which have increased to 2.73%, its highest level since 2014, is weighing onmarkets. For the gold market, higher bond yields reduce the yellow metal’sopportunity costs.
Some analysts also see the selling in gold more as atechnical feature of the marketplace as some investors take some profits offthe table ahead of Wednesday’s Federal Reserve monetary policy meeting.
“Gold is still in the same positive trend it has been insince December, but seeing as tomorrow is the Federal Reserve update, tradersmay not be too keen to stay long going into the meeting,” said David Madden,market analyst at CMC Markets.
While gold isn't seeing positive inflows on the back ofweaker equity markets, analysts say they aren’t too concerned the yellow metalwill lose its new year momentum.
Phillip Streible, senior market analyst at RJO Futures, saidthat he is looking for gold to hold gains above crucial support at $1,320 anounce.
By Kitco NewsFor Kitco News
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