Gold Recovers after September Sell-off

By Leia Toovey- Exclusive to Gold Investing News

Gold prices stabilized in October and are recovering after the massive sell-off  in September that caused prices to crash after a record high of $1923.70 an ounce on September 6. As of Friday, the yellow metal was on track to post its biggest weekly rise in 33 months as a resolution to the Eurozone debt crisis pushed the greenback lower and calmed the panic that has been permeating the markets.

In September, the markets reacted to negative sentiment, spurred by the Eurozone debt crisis and weak growth numbers out of the world’s two largest economies: China and the US. While remnants of this pessimism influenced the markets this month, the overall tone was positive, with the focus turning towards the solution to the Eurozone crisis, and improving economic data out of the United States. This optimism spread throughout the commodities, hedge funds increased bullish bets on commodities by the most since August, and Standard & Poor’s GSCI gauge of 24 commodities has climbed 9.2 percent so far in October, putting it on track for the biggest monthly advance this year. In September, the GSCI tumbled 12 percent, the biggest loss since the financial slump of 2008.

Even though gold’s rally eased on Friday, from a one-month high of $1,751.99 to $1,740.19 an ounce, the metal was still on course for a gain of around 6 percent from a week earlier, the biggest one-week rise in two months. On Thursday, the metal climbed as Eurozone leaders struck a last minute deal to contain the region’s debt crisis. Gold also gained strength when in the third week of the month the US released positive data regarding the health of its economy. Reports showed US housing starts jumped to the highest since April 2010 and manufacturing unexpectedly accelerated, increasing confidence that the world’s largest economy will stave off a second recession.

Gold’s rally received extra impetus from a declining greenback. On October 27, the US dollar suffered its biggest decline in over two years with the dollar falling to a record low against the Yen. The greenback also declined against the Euro after the European debt deal sparked a relief rally. Despite gold’s positive momentum, analysts were quick to point out that volumes were very low, suggesting that traders and investors are still not convinced of the precious metal’s direction. The turnover of US gold futures has topped the average daily volume of 17.5 million ounces of gold on just one trading day so far this month. In contrast, gold-backed exchange-traded funds showed no major changes in the metals they held, which suggests strong investment demand.

Improving access to gold

An Indian company has launched what it says is the world’s first ATM to dispense diamonds, gold and silver coins. Hoping to cash in on India’s insatiable demand for jewels and precious metals, the Gitanjali group, the world’s largest jeweler, is planning to install 75 machines in retail centers, temples, and airports across the country. “This machine will revolutionize the processes by which precious metals and jewelry is bought,” said Sanjeev Agarwal, the chief executive of Gitanjali group. Mr. Agarwal says that the first such machine is already operating in central Mumbai (Bombay) and had served “a substantial number of customers.” India is the world’s largest consumer of gold. On September 26, China, the second-largest consumer, installed the country’s first gold vending machine in a shopping district in Beijing. The machine accepts cash or a bank card and can dispense up to 2.5 kg of gold.

ATMs and vending machines are just a few examples of how sellers are trying to improve investor access to gold and silver.  Last May, even eBay jumped on board when it offered its Bullion Center, an online bazaar for gold and silver. According to Todd Witkemper, a spokesman for eBay Marketplaces The Bullion Center was created as consumer demand for gold and silver increased. Witkemper added that the featured sellers inside the Bullion Center offer some of the most competitive prices on the Web, along with free shipping. “These benefits provide buyers with highly competitive prices and average seller premiums that are lower or comparable to other bullion sites,” said Witkemper.

 

Securities Disclosure: I, Leia Toovey, hold no direct investment interest in any company mentioned in this article.