Gold Ends Weaker, But Tugged by Competing Market Forces

By  Paul Ploumis 25 Aug 2015  Last updated at  06:30:44 GMT

(Kitco News) - Gold prices ended the U.S. futures trading session modestly lower in a wild trading day in the market place Monday—although the gold market did not see high volatility. The yellow metal did hit a six-week high in morning dealings, after the U.S. stock market sold off sharply right at the opening.

Gold prices lost altitude just before midday when the U.S. stock indexes bounced well up from their early spike lows. Gold was also pulled to the downside by the major sell-off in the raw commodity sector recently, led by crude oil prices touching a six-year low on Monday. Nymex October crude oil futures traded to a low of $37.75 a barrel Monday.

However, safe-haven demand for gold amid the world stock markets' extreme sell offs was evident Monday, as was the case last week. Also benefiting precious metals bulls on this day was a sharp decline in the U.S. dollar index, which notched a six-week low. December Comex gold was last down $5.30 at $1,154.30 an ounce. September Comex silver was last down $0.52 at $14.78 an ounce.

I suspect part of the downside pressure on gold today came from margin calls in other, more volatile markets spilling over into selling in the gold and silver markets. There’s an old saying that says when markets get crazy like today, and you can’t sell what you want, you sell what you can.

The world market place is presently keenly eye-balling the U.S. stock indexes, which were trading well up from their daily lows as of this writing just after midday Monday. If the U.S. stock indexes sell off more sharply and retest the lows yet today, look for gold to get a bigger safe-haven boost. The key questions for the market place right now are: Will the daily spike lows in the U.S. stock indexes hold? Or are new lows coming soon? The answers to those questions will be better known at the end of the trading week.

The Dow Jones Industrial Average at one point shortly after the open was down more than 1,000 points. The volatility index (VIX), which measures stock market volatility, at one point traded at 56, reports said, which is an extremely high rating and is an indicator of the stress in the market place at present. At midday the index was around 30.00, which is still high and indicates continued trader and investor anxiety. Veteran traders also know the upcoming months of September and October can be bearish for the stock market.

China’s Shanghai index was down over 8% overnight and is now in negative territory for the year. Monday’s plunge in the China stock market is the largest one-day drop since the financial crisis that began in 2008. There are news reports that China’s central bank is ready to inject massive liquidity into the Chinese financial system in order to increase lending and stop the sell-off in China equities. The world market place is worried about a slowdown in China’s economy, which is the world’s second-largest.

Japan’s Nikkei stock index was down by nearly 5% Monday. European stock indexes were down around 3% on the day, at their worst levels, before rebounding by the close. 

The market place is concerned about a world financial market contagion setting in. Look for more robust safe-haven demand for gold to occur if the world market place continues in a near panic mode early this week.

Secondary world currencies also shuddered Monday, as cash is flowing out of the periphery currency markets and into perceived safer-haven currencies and assets.

All of the above have called into serious question the ability of the Federal Reserve to raise U.S. interest rates any time soon. In fact, reports said the Fed funds futures in Chicago now show only about a 25% chance the Fed will raise rates in September.

Later this week U.S. Federal Reserve officials meet in Jackson Hole, Wyoming for their annual meeting to discuss monetary policy and other economic issues. Past meetings have produced news that moved the markets.

The London P.M. gold fix is $1,166.50 versus the previous A.M. fix of $1,153.50.

Courtesy: Kitco News