Futures Market News
Spain troubles weigh heavily on gold futures
May 30, 2012 01:27 PM
Gold futures touched their lowest value in one week on Wednesday, following the trajectory of the hobbled common currency of the European Union, according to Reuters.
The 17-nation monetary unit was suffering Wednesday under the duress of the sovereign debt crisis attacking Spain, whose borrowing costs increased to levels higher than 6 percent for the first time since November of last year.
Spain's financial situation is of concern to investors and makes the nation vulnerable. When bond yields in Portugal, Ireland and Greece reached 7 percent, each nation sough bailout aid, with the Aegean nation accepting two bailouts since June 2010.
Investors are closely eyeing central banks to boost liquidity as a method of enhancing the economies they support and to preserve low funding costs while increasing inflationary outlooks. Should the banks employ those measures, the price of the yellowish metal will benefit.
In two-plus weeks, voters in Greece are slated to return to the polls to elect a leader after May 6 elections were inconclusive. Recent polls have shown tendencies toward conservatives who view bailout measures in the Aegean nation favorably, but election results remain an unknown.
"Policymakers are waiting for clear commitments from some of the peripheral countries before they allow accommodation to support growth," commodity strategist Jeremy Friesen with Societe Generale in Hong Kong told Reuters.
At 11:50 a.m. on Wednesday, gold futures climbed 0.37 percent, a $5.80 lift to $1,556.80 per troy ounce.
But Bloomberg reports the price of gold is set to climb as a consequence of the sovereign debt crisis as well.
The deepening debt crisis is driving demand for the yellowish metal as a protection of wealth.
While the shared currency of the European Union dropped on Wednesday to its lowest value against the world's reserve currency in nearly two years, several factors could prove to be beneficial for the yellowish metal.
The governor of the central bank of Spain resigned a month earlier than planned, credit rating service Egan-Jones Ratings slashed Spain's rating on Tuesday and the European Commission said direct euro-area aid should be issued for banks immersed in trouble.
"Ongoing concerns about the euro, the downgrading of Spain and the risk of contagion is of course bullish for gold," states a report penned by analysts at brokerage GoldCore in Dublin, according to Bloomberg.
The yellowish metal touched its lowest price in one week earlier in the session when it scraped $1,546.10 per troy ounce. The price of gold is down 6.5 percent for the month of May as it drives toward a fourth consecutive monthly loss. That streak represents the yellowish metal's worst losing streak since 2000.
Thus far this year, gold futures are down roughly 0.7 percent despite having achieved gains for the past 11 years.
But concerns for Spain, the host of the euro zone's fourth-largest economy, are weighing heavily on markets. Italy's economy is third-largest, France's is second and Germany hosts the region's largest economy.
"It's pretty much a sell everything day. Gold was considerably higher earlier and is continuing to join the parade as the day goes on," principal Bill O'Neill with Logic Advisors told Dow Jones Newswires.
Investors continued devoting more interest to the U.S. dollar in lieu of the common currency as the sovereign debt crisis continued drawing down the euro's value.
"No commodity can stand up against a stronger USD in the short-run," states a client note penned by commodity strategy head Walter de Wet with Standard Bank, according to Dow Jones Newswires. "However, over a longer period of time commodity prices adjust despite the level of the USD - this is clear if you look at the value of gold over the past decade."
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