The correlation between economic uncertainty and futures contracts was illustrated once again on January 17, as gold was pushed higher by concerns related to the U.S. economy.
Gold Alert reports that the precious metal initially declined in price as markets reacted to news that the number of jobless claims filed in the United States was lower than expected. A total of 335,000 of these initial applications for unemployment benefits were filed, compared to the consensus estimate of 369,000 provided by economists.
According to the news source, gold prices tracked higher after a U.S. manufacturing report released by the Philadelphia Federal Reserve declined to a reading of negative 5.8. This figure indicated that the region's manufacturing was contracting, and the number was also lower than the 5.6 predicted by market experts.
Forbes reports that in addition to this information, markets responded to news that housing starts rose substantially in December. This combined with the jobless claims data to push the U.S. dollar index higher. The appreciation of the greenback relative to other currencies made it cheaper for foreign investors to purchase dollar-denominated gold contracts, pushing their value higher.
According to the media outlet, the market participants betting that the greenback will decline in value relative to other currencies had the technical advantage in the near future, which is expected to put upward pressure on the prices of precious metals.
Reuters reports that spot gold had a good day, rising 0.7 percent to trade at $1,691.14 an ounce. In addition, U.S. gold futures were up 0.5 percent at $1,692.30 per ounce. The metal has had a strong week, moving above its 200-day moving average during the period, after falling below this level earlier in the month when market participants became concerned about the future of monetary easing conducted by the Federal Reserve.
"We are still in a period of trial, trying to rebuild the confidence into the gold market," Saxo Bank vice president Ole Hansen stated, according to the news source. "We have not breached any critical levels yet to the upside, which could signal that further strength could be coming."
He pointed to the warniness being experienced by many global market participants, stating that "while we still stay above the 200-day moving average around $1,662, there is a lot of nervousness in the market." He also noted the volatility of the gold markets, stating that "we've seen big swings at the start of January, we spent the last week trying to recover from that."
U.S. debt ceiling
While U.S. economic data is expected to have a substantial impact on gold prices, Gold Alert reports that the pending U.S. national debt ceiling dilemma will probably being a more significant variable.
Speaking on this matter, Credit Suisse analyst Tom Kendall recently wrote in a note that "the broader debate that is going to happen in the U.S. in the run-up to the debt ceiling crisis point at the end of February is going to be supportive of gold. Talks of downgrades from the major rating agencies will be part of it."
He said that the substantial visibility that this matter is generating will raise questions about the long-term sustainability of the U.S. national debt, and will provoke thought surrounding the future of the dollar as well as the impact that the currency could have on gold.
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