Fresh Hedge Buying Boosts Gold Prices
Posted January 06, 2015 15:53 (GMT) | By FX Empire Analyst - James Hyerczyk | Print | Font Size
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February Comex Gold traders are ignoring the strength in the U.S. Dollar by posting a strong gain on Tuesday. Concerns about the outcome of the election later this month in Greece and its possible ramifications for the Euro are helping to boost demand for gold. Later this month on January 25, Greece will hold elections which could determine whether the nation continues to remain a member of the Euro Zone.
The cost of insuring Russian bonds against default rose today to its highest level in almost six years on speculation a cut in the nation’s credit rating to junk is imminent. This caused a drop in the ruble which may have led to more speculative buying in gold. Finally, the weakness in the stock market is also helping to boost gold prices. As investors take profits in stocks they tend to park their money in gold while they await the next buying opportunity.
February Crude Oil prices continued to fall on Tuesday. The market could begin to accelerate to the downside now that the psychological $50.00 barrier has been taken out with conviction. Brent Crude Oil is also threatening $50.00 after falling to its lowest level since May 2009.
On Monday, WTI crude oil prices fell to a new five-and-a-half year low after Saudi Arabia cut prices to Europe. This move may have been an attempt by the Saudis to retain European market share. In conjunction with the aggressive action by the Saudis, the main drivers of the drop in prices continues to be overproduction by OPEC and U.S. oil companies along with a drop in demand because of economic slowdowns in Europe and China.
The EUR/USD posted an inside day on Tuesday, but continued to remain weak. Oversold conditions may be contributing to today’s trader indecision. After reaching a 9-year low on Monday, today’s pause in the aggressive selling may only be temporary as traders await further news about Euro Zone inflation and the European Central Bank’s plans to implement quantitative easing.
The GBP/USD traded lower on Tuesday as investors continue to erase all hope for an interest rate hike by the Bank of England. The catalyst behind today’s weakness may be residual selling from Monday’s bearish news that U.K. construction slowed in December to a 17-month low.
Today, it was reported that growth at U.K. service companies slowed more than economists forecast in December. According to Markit Economics, its Purchasing Managers’ Index fell to 55.8 from 58.6 in November. This was its lowest level since May 2013. Traders were looking for a reading of 58.5.
Both reports serve as strong proof that the U.K. economy lost momentum in late 2014.
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