Gold continues to decline ahead of GDP figures from the euro zone
Gold continued to loose strength ahead of the closely watched gross domestic product figures from the euro zone along with inflation data from the United Kingdom, which could have retreated in October, easing demand for gold as hedge against inflation; however, several other factors are leading this decline seen on the metal, as the strengthening U.S. dollar is the most effective factor.
Gold extended the downside movement seen yesterday, where after the opening of $1779.20 per ounce; the metal declined further reaching a low of $1766.07, after setting the highest at $1782.82, and is currently trading around $1769.90 per ounce.
The U.S. dollar inclined sharply yesterday and gained strength against other major currencies, commodities and metals, where the low yielding currency was excessively demanded by investors who tend to avert as much risk as possible while searching for safe havens; however, gold is one of the safe havens, but on the other hand traders close their gold positions in order to cover the widely spread losses as seen across the board.
So far, the U.S. dollar gained around 100 points since starting this week and extended the gains today, supported by the pessimism and rising debt concerns, where after the opening of 77.46 today, the index rebounded to the upside reaching a high of 77.71, but then lost some strength and reached a low of 77.43, and is trading in the moment around 77.53.
Pessimism is still dominating the market despite the steps taken by Italy and Greece, where both nations were able to end the political instability and approved the on further cuts and austerity measures as required from the European Union; however, investors lost faith in the euro-area region and now are waiting for more serious steps and for leaders to implement the final plan to tackle the debt crisis once and for all.
Moreover, doubts are rising in the market that Italy if still could have accessed the capital market; it will not be able to bear the unsustainable yields, as yields on 10-year Italian bonds surged above 7.0%, while on 5-year bonds rose to the highest record since 1997, which added to concerns that the one currency union could fail and now eyes are concentrated on the new Italian government led by Mario Monti to implement the austerity measures in order to restore confidence and prove all wrong by saving his nation from falling in the debt-trap.
Germany released the gross domestic product for the third quarter in a preliminary reading, where the German economy expanded by 0.5% in line with expectations and better than the previous expansion; however, eyes will be focused on the euro-area region growth especially after several institutions lowered forecasts for the euro zone including the European commission which lower forecasts for 2011 to 1.6% from 1.8%.
It is a busy day for Europe and U.S., where heavy fundamentals are to be released by both nations, which could trigger more volatility and fluctuations to the market, but in general we expect metal to remain pressured to the downside during the session today.
Among other precious metals, silver also declined today, extending the losses incurred in the past session, where after the opening of $34.19 per ounce, the metal recorded the highest at $34.37 and the lowest at $33.80, and is currently trading around $33.98 per ounce.
Platinum also lost slightly today, where after starting the session in Asia at $1644.00 per ounce, and set the highest at $1655.00 and the lowest at $1636.25, and is currently hovering around $1642.50 per ounce.