MW: Gold weakens in Asia as investors take on more risk
Gold prices and mining company shares alike headed lower in Asia Friday as optimism in the global stock markets gave traders confidence to move away from the save-haven of the precious metal and take on more investment risks.
Gold lost ground "on comments out of the G20, the idea that IMF gold sales will occur and also a fairly upbeat tone coming out of the meetings," said Kevin Kerr, editor of Global Commodities Alert.
On Thursday, leaders of the Group of 20 nations agreed to provide more than $1 trillion in resources to the International Monetary Fund and other international institutions in an effort to confront a deep global economic downturn. See full story.
The measures helped drive investors away from the gold markets, pulling gold futures on the New York Mercantile Exchange on Thursday down by 2% to a close at $907.40 an ounce for the April contract. See Thursday's Metals Stocks.
Spot gold prices were recently at $903.70 a troy ounce, down 30 cents from their New York closing levels.
Asian gold stocks also dropped sharply in Friday's trading session, with Zijin Mining Group dropping 4.9% in Hong Kong and Shandong Gold-Mining Co. shrinking 4% in Shanghai trading.
In Sydney, shares of Lihir Gold tumbled 6.8% and Newcrest Mining lost 6.3%.
Losses in the gold market bucked the broader trend in the Asian markets. Japan's Nikkei 225 Average was up 0.6% at 8,769.72, South Korea's Kospi added 0.4%, Australia's S&P/ASX 200 gained 1.2%, China's Shanghai Composite rose 1.2% and Taiwan's Taiex tacked on 0.9%. But Hong Kong's Hang Seng Index was down 0.8% at 14,405.92 in volatile trading.
Optimism pressures gold
"The fall in gold prices is directly attributable to the plans coming from the G20 meeting to stimulate the world economy," said Nigel Moffatt, treasurer at The Pert Mint, which is owned by the government of Western Australia.
"The proposed changes to U.S. accounting standards, which will relax the mark-to-market requirements, will allow companies to change their bottom lines drastically, and this is seen as a boost to flagging stock markets around the world," he said.
The U.S. Financial Accounting Standards Board on Thursday voted unanimously to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value. The new guidance alters so called mark-to-market rules. See full story on mark-to-market flexibility.
Despite that, the gold price itself "has not fallen a great deal and I think that this is likely to be seen by many as a buying opportunity," said Moffatt.
Kerr disagreed. "Gold may have further to correct as the idea of gold sales on the broader market will keep the market under pressure," he said.
Leaders of the G20 nations on Thursday endorsed the International Monetary Fund's plan to sell 403 tons of gold to raise funds to support the world's poorest countries. See full story on gold sales plans.
Despite seeing pressure from the gold sales plans, inflation fears will eventually "kick in and gold will have its day," said Kerr. "It may not be for awhile though."
On a technical basis, Chintan Karnani, an analyst at Insignia Consultants in New Delhi, pointed out that there's "technical congestion" between the $850 and $860 zone for gold prices. As long as gold holds that zone, it'll continue to rise in the medium term, he said.
"If and when gold prices fall below $850, then $750-$780 could be the target," he warned.
