After falling most of this week, the spot price of gold today reached a 16-week low of $1250.21 an ounce. It is currently trading at $1251.70 and is set to complete a monthly loss on signs of an improving US economy and a de-escalation of the Ukrainian crisis. Gold has managed to appreciate six percent since January – double the return of the S&P 500 index for the same period.
The precious metal has given up nearly three percent since Tuesday after the number of orders for durable goods in the US rose unexpectedly in April and global equities reached their highest levels since 2007.
A senior US defence official told the Wall Street Journal today that the majority of Russian troops that were stationed on the Ukrainian border had been pulled back. Approximately 7000 soldiers, or seven battalions, remain, down from an estimated 20,000 on the border, with an equal number in the vicinity. This move comes after a series of public announcements by Russian President Vladimir Putin claiming that he had ordered a withdrawal. It also comes a week before Mr Putin’s planned visit to France for an international D-Day commemoration. "We do know thousands of Russian troops have been pulled back and are moving away. But we also know there are thousands of Russian troops still there that have not moved," Defense Secretary Chuck Hagel said from his plane while travelling to Singapore. "Any time you are moving troops, equipment and assets away, that is promising," he said. "But they are not where they need to be, and won't be, until all the troops they positioned on that border a couple months ago are gone," he added. The pullback came, however, hours after pro-Russian separatists in eastern Ukraine shot down a military helicopter, killing a general and 13 soldiers.
The S&P 500 index advanced to its third record closing high in four sessions on Thursday, while the data indicating the US economy shrank in the January-March quarter was largely ignored with the focus settling on speculation of growth in the second quarter. "It was well known that yesterday's Q1 GDP figures for the United States were distored [sic] by the extremely severe winter," said Peter Fertig, a consultant at Quantitative Commodity Research, in an interview with Reuters. He further argued that "The move into riskier assets like equities, which have performed well, [was] weighing on gold."
"The market is not as worried about Ukraine as it has been in March and April. That's reducing support from that side for gold," he added.
“Barring a serious conflagration out of the Ukraine that could involve the Russians, we think prices will likely continue to work lower given gold’s poor technical profile,” Edward Meir, an analyst at INTL FCStone in New York, wrote in a report e-mailed today.
Gold premiums in India were halved this week on speculation Mr Modi’s government would ease restrictions on bullion imports. They fell to $30-$40 an ounce over the global benchmark, from $80-$90 last week, according to traders who spoke to Reuters.
The world’s second biggest consumer of gold imposed restrictions on imports of the precious metal last year in an attempt to control its current account deficit. It also introduced the so called 80-20 rule which requires one fifth of all imports to be exported. If these policies were indeed reversed, global physical gold demand could pick up offering support to prices.
Elsewhere in Asia, demand failed to increase despite prices being near a 16-week low.
"It's been very quiet because people bought a lot last year and they are holding back now. I don't think we will see any significant increase until the latter half of the year," Bachhraj Bamalwa, director with All India Gems and Jewellery Trade Federation, told Reuters.
Jim Wyckoff, market analyst and columnist, told Kitco News the currently low price of gold may be a good opportunity to go long as he does not discount the possibility of a flight to safety among investors because of falling bond yields in the US. In addition, gold’s retreat has sent its 14-day relative-strength index below the level of 30 which some technical analysts view as a potential catalyst for a rebound.
