Gold futures rose on Monday as the U.S. dollar weakened and stocks declined, creating more demand for a safe haven for investors.
According to Bloomberg, gold for December delivery climbed 0.6 percent to $1,245.90 an ounce by 9:56 a.m. on the Comex in New York. Prices may climb to $1,257 by the end of this week one analyst said. The Bloomberg Dollar Index Spot fell 0.1 percent and the Stoxx Europe 600 index declined 0.8 percent due to investors speculating on the timing of a Federal Reserve rate increase.
Dollar's decline supporting gold prices
The Wall Street Journal reported that the Dow Jones Industrial Average was recently down 0.5 percent at 16291.8, while the S&P 500 stocks index was nearly flat at 1886.45. Stocks and gold tend to move inversely, as investors generally see gold and other precious metals as a store of value, while currencies and equities are seen as signs of economic growth. Thus, the decline in the dollar and stocks are lending a degree of support to gold prices.
Additionally, the U.S. dollar was weaker against the euro on Monday with the European currency recently trading at $1.2780, up from $1.2731 earlier. Since gold is traded in dollars, investors using other currencies to buy gold can get it for cheaper as the greenback declines against its rivals.
"The combo of the two will give gold a boost," Bernard Sin, global head of precious metals trading at MKS (Switzerland) SA in Geneva, said an an email to Bloomberg regarding the confluence of declining stock prices and a weakened U.S. dollar.
Bullish bets on gold follow economic slowdown
For some investors, the latest news on the U.S. dollar and equities, the impending global slowdown and the Federal Reserve's timing on possible interest rate increase have led to more bullish bets on the precious metal. Speculators increased their net-long bets on gold for the first time in nine weeks. Additionally, mounting concerns about a weakening global economy could lead more investors to find a haven, as currencies and stock prices drop.
Bloomberg reported that the net-long position in gold increased 39 percent to 51,994 futures and options contracts in the week ended Oct. 14, according to the U.S. Commodity Futures Trading Commission data published three days later. This increase marked the biggest gain since June 24. Short holdings betting on a decline shrank 1.7 percent in that time.
According to Bloomberg, some analysts at the Federal Reserve believe flagging global markets could lead to a slowdown in the U.S. economy, spurring more gold purchases. This prediction came on the heels of more than $3.2 trillion being wiped from the value of global equity shares this month as the International Monetary Fund cut its outlook for global economic growth in 2015.
"In the last couple of weeks, it has become a lot clearer that when money is flowing out of all asset classes, it does not seem to be flowing out of the gold market. As the news flow continues to come out that the global economy and demand for things is deteriorating, it leads investors back to the asset class of gold," said Eric Zoldan, a New York-based certified investment management analyst with JHS Capital Advisors, which oversees about $4 billion.
Other precious metals follow gold's lead
Gold wasn't the only precious metal to get a boost. The Wall Street Journal reported that silver for December delivery was up 16.4 cents, or 1 percent, at $17.495 a troy ounce on the Comex. Platinum for January delivery rose 0.8 percent to $1,271.70 an ounce on the Nymex. Palladium was up 0.3 percent at $759.20 an ounce. These precious metals tend to follow gold prices, as investors see them as another store of value in the face of uncertain economic times.
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