Gold Below $1,400, Set for Lowest Close in a Month

SAN FRANCISCO — Gold futures dropped below $1,400 an ounce Wednesday, set for their lowest close in about a month as the U.S. dollar strengthened, equities climbed and outflows from gold exchange-traded funds continued.

“Whatever the long run benefits of holding gold in a portfolio, the fact that both the U.S. dollar and equities are showing such strength right now tells us that now is not gold’s moment in the sun,” said Ben Traynor, chief economist at BullionVault.

‘The fact that both the U.S. dollar and equities are showing such strength right now tells us that now is not gold’s moment in the sun.’

Ben Traynor, BullionVault

Gold for June delivery (CNS:GCM3) fell $29.70, or 2.1%, to $1,394.80 an ounce on the Comex division of the New York Mercantile Exchange. Prices were poised for their lowest close since April 18.

The contract dropped $9.80 Tuesday. It’s lost a total of more than 3% over the past four trading sessions.

July silver futures (CNS:SIN3) also sank 65 cents, or 2.8%, to $22.73 an ounce

The decline in gold prices came as the U.S. dollar climbed against its major rivals, with the ICE dollar index(NYE:DXY) at 83.977, compared with late Tuesday’s 83.575 level.

“Gold is directly confronting the probability that the U.S. dollar will ascend higher, taking a variety of forex signals back to days not seen since at least 2006,” said Richard Hastings, a macro strategist at Global Hunter Securities.

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“This has very large implications for many things, and gold is very exposed here,” he said. When the Japanese yen(ICAPC:USDJPY) selling wave began in November 2012, the risk of an extensive and prolonged impact on gold prices had to be thrown onto the table, and now we are seeing that gold prices are doing a great job of saying the USD goes higher against the euro.”

The euro (ICAPC:EURUSD) dropped to a six-week low against the dollar on a closing basis Wednesday after data showed the French economy slid into a recession, with its gross domestic product slipping 0.2% in the first quarter from the three month period ended Dec. 31.

Figures released separately also showed Germany’s economy rose 0.1% during the first quarter, undershooting expectations for a 0.3% improvement.

The dollar has been shedding its haven status, rising with expectations of better U.S. economic growth and an expected end to the Federal Reserve’s quantitative easing. Those gains, combined with a broad, record-breaking rally in stocks, have curbed demand for gold as a hedge against dollar weakness and poor economic times.

The metal has fallen 15% this year.

Flow toward equities

In addition to dollar strength, investors’ switch from gold into equities is also weighing on gold prices, analysts said.

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Gold extends losses into a fifth straight session.

“With Europe struggling and interest rates still at historic lows, a lot of capital has been pushed into equities,” said BullionVault’s Traynor.

U.S. equities on Wednesday moved higher after a gauge of home-builder sentiment gained in May. European stocks also rose as weak growth data from the euro zone raised hopes the European Central Bank would consider more measures to boost the economy. In Asia, Japanese shares soared on the back of a weaker yen.

Gold hasn’t benefited because the “broader investing world is not as scared as it has been at times in the recent past,” Traynor said. “Gold ETFs have seen huge outflows this year.”

Gold holdings in the largest U.S. gold-backed ETF, the SPDR Gold Trust (NAR:GLD) , were at 1,051.65 metric tons Tuesday, down about 298 metric tons from 1,349.92 metric tons on Jan. 2.

On Wednesday afternoon, shares of the ETF were down 2%. The Philadelphia Gold and Silver Index (NPI:XAU) also lost 2.4%.

Elsewhere in the metals complex, July copper (CNS:HGN3) fell nearly 2 cents, or 0.5%, to $3.27 a pound.

June palladium (NMN:PAM3) was lower at $725.95 an ounce, down $1.20, or 0.2%, and July platinum futures (NMN:PLN3) slipped $18.50, or 1.2%, to $1,483.40 an ounce. (MarketWatch)