By Russell Glaser – Spot gold prices have fallen from their all-time high as the euro and global equities have staged a small comeback on positive economic data from the U.S., Europe, and China. However, this doesn’t appear to be enough to derail the long term bullish trend the commodity has been experiencing over the past 20 months.
The price of spot gold has risen in the latest bullish trend from a low of $681, to a new all-time high of $1251 last week. This is an appreciation of roughly 84% since October of 2008.
Since the price of gold set a new high during the previous week, prices have fallen to $1224. Over the same period, the euro has moved higher versus the dollar by 2%.
Driving the long-term gains in the price of spot gold have been the demand for safe haven assets as the global economy struggles to pull itself out from the most recent economic recession. In light of the European fiscal crisis that is affecting the nations of Greece, Spain, Portugal, and Ireland, Europeans have been leading the charge with gold buying, changing the euro that has sunk value in exchange for the hard commodity gold.
Some well-known hedge fund managers have also been vocal advocates of for gold bulls. George Soros and John Paulson have had no reservations of expressing themselves as proponents for the commodity. This may be done to help influence others to get onto the gold bandwagon and to pressure the price of the commodity upwards.
Since October of 2008, spot gold prices have been acting as a safe haven asset, rising on poor economic data such as the May U.S. Non-Farm Payrolls report that failed to meet the market’s expectations.
However, as the recent string of positive economic data continues, traders have felt less of a need to buy the safe haven asset and have opted for relatively riskier, higher yielding currencies.
Last week, Federal Reserve Board Chairman Ben Bernanke testified before Congress that he expects the U.S. economy to grow by 3-4% and for an eventual replacement of the government stimulus funds by consumer and business spending.
China’s economic machine continues to be the engine of global growth. For the month of May, Chinese exports rose 48.5% from the equivalent period during the previous year. This was well above economists’ expectations for a rise of 32%.
Similar European export data was released yesterday. Monthly euro zone industrial production climbed 0.8% on economic forecasts of an increase of only 0.7%. This is quite surprising as the increase in economic activity occurred despite the fiscal crisis that hangs over Europe.
All of this positive economic news has led to a short term comeback in equities. The S&P 500 is up 5% since the beginning of last week and spot gold prices have come off of their all-time high.
Positive economic releases such as the aforementioned may have a negative short-term impact on the price of gold, but it should not derail the bullish trend. Until concrete evidence of a sustained economic recovery is released in the form of U.S. employment data, the price appreciation should continue in spot gold.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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