Capital Gold Group Report: Gold Prices Up - Fundamentals Still Strong
NEW YORK (The Street) -- Gold prices were tiptoeing higher Tuesday as safe haven buying continued despite a recovery in risky equities.
Gold for August delivery was adding $1.90 to $1,226.40 at the Comex division of the New York Mercantile Exchange. The gold price today has traded as high as $1,226.80 and as low as $1,221.10 on light volume. The U.S. dollar index was slipping 0.05% to $86.46 while the euro added 0.46% to $1.22 against the dollar. The spot gold price Tuesday was rising more than $4, according to Kitco's gold index, indicating that investors were opting for the physical metal over paper gold, or future contracts.
Gold prices settled $5 lower on Monday, but recouped most of those losses after Moody's downgraded Greece's credit rating. The cut came as no big surprise to investors, but the news tempered the euro's rally and moderately increased gold's appeal as a safe haven asset.
Gold prices will continue to take their direction from eurozone
debt fears and will look toward Thursday's Consumer Price Index data. The CPI measures inflation, and many investors
have been buying gold as a hedge against money printing and a
devalued dollar. However, according to Briefing.com, the CPI is
expected to fall 0.1% in May, indicating that inflation should stay
firmly on the sidelines, which could prompt some gold selling as
investors readjust their positions.
Over the long term, limited inflation risk will support the Federal Reserve's decision to keep rates low for an "extended period of time" and, in fact, falling prices could be a sign of deflation. In either scenario, gold bugs think gold prices will head higher as fiscal uncertainty in general will lead to safe-haven buying.
In the short term, however, gold prices seem stuck in a narrow trading range. Any dip near the $1,220 area is met with bargain-buying, but momentum is unable to push prices firmly past $1,230 an ounce. Summer is also typically a slow buying season for gold. A lack of any major festivals or wedding seasons in India puts pressure on jewelry demand.
"This might see gold [price] come back a bit ... but overall the
fundamentals still remain," says Toon van Beeck, senior industry analyst
at IBISWorld. "[But] once we see another fear incident, this should
push gold maybe beyond the $1,250 mark and reaching maybe $1,300."
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