Gold futures bounced $5/ounce this morning after closing down at $1,120 yesterday. The more active 3-month future was last changing hands at $1,127, in electronic trading on Globex.
Bears generally seem to be coming out on top this week as the gold market has fallen four consecutive trading sessions. Many analysts and commentators have been pointing to the rebounding dollar and a considerable amount of profit taking following last week’s, record high at $1,226.
The US Dollar continues to be the influencing force on the gold market, so far this week the dollar has been recovering following an extended period of selling in recent weeks. The dollar index climbed to an intra-session high of 76.25 earlier today.
Gold prices and the US Dollar have a directly inverse relationship; typically a fall in the dollar will prompt an increase in value for gold and vice-versa. There are two primary factors that govern this relationship. Firstly like all major commodities gold is primarily priced in dollars, therefore a change in relative value of the dollar directly impacts on the commodities relative value, particularly for investors outside the US.
The second and perhaps the most crucial factor relates to international reserves. All nations, through central banks, store a proportion of their wealth in a reserve, which exists to protect the relative value of the economy's wealth. The majority of international reserves are held in US Dollars, when the dollar is weak, international reserves devalue, subsequently central banks increase their demand for alternative assets such as Gold.
In London gold stocks were generally weaker, international producer Randgold Resources (LSE: RRS) eased half a percent lower to trade at £49.68, meanwhile in the FTSE250 Petropavlovsk (LSE: POG) fell more decisively, losing 2.5%. Also falling was emerging producer Centamin Egypt (LSE: CEY) who dropped 1%, Canadian based Yamana Gold (LSE: YAU) were unchanged.
There were a few brighter stocks among the junior explorers and developers on the AIM market. Nyota Minerals (AIM: NYO) and Kryso Resources (AIM: KYS) advanced more than 3.5%, while gold producer Pan African Gold (AIM: PAF) and Philippines operating Metals Exploration (AIM: MTL) both climbed more than 2%.