Gold price drops as safe haven buying dries up again
On the Comex division of the New York Mercantile Exchange, gold futures for December delivery – the most active contract – came under heavy selling pressure losing more than $20 to $1,274.90 an ounce in pre-open trade Thursday, a two month low.
The slide in the price of gold came after minutes of the last US Federal Reserve meeting released yesterday showed the US central bank opting for a more hawkish tone as the country's job picture continues to improve.
Short term bond yields – negatively correlated with the gold price as the metal is not income producing – jumped the most since March on expectations that the bank might raise rates a bit sooner than expected.
The dollar strengthened further following a 11-month high against a basket of currencies reached yesterday thank to a subdued US inflation outlook as the central bank continues to withdraw stimulus for the US economy. Gold and the US dollar usually move in opposite directions.
Chairman Janet Yellen may shed more light on the future of US monetary policy on Friday during a speech at the Fed's annual gathering in Jackson Hole.
The gold price failed to consolidate above the psychologically important $1,300 level on the back of safe haven buying spurred by the turmoil in Ukraine and Iraq, giving up more than half the gains of the June-July rally, falling below its 200-day moving average – a bearish technical sign.
The oil price has not benefitted much from the turmoil in the Middle-East and Eastern Europe sliding to fresh lows below $95, down from more than $106 a barrel at the end of June.
Looking at the ratio between the gold price and the oil price which usually rise in tandem (rising oil prices pushes up inflation increasing demand for gold as a hedge), gold still looks undervalued by comparison.
Since 1970 the average ratio – how many barrels of oil can be bought with one ounce of gold – is 15 compared with under 14 now, which suggests that despite the fall in crude and gold's over 6% rise in 2014, the metal remains relatively cheap compared to oil.