Gold Prices Steady Following April Decline

May 10

Last month saw gold prices take a steep turn for the worse that removed any previous confidence in the gold market. Since then however, the prices of bullion have remained within their range as demand for physical gold has begun to pick up. Despite this, there are still few signals of bullishness, primarily down to record performances in the stock markets, and general calm in Europe.

The $200 (approximately 15%) slide in early April has not yet been recovered, but gold is now up more than 10% on the middle of last month. Anyone who has bought since has probably made a decent trade, but caution is still playing a part. Some large hedge fund owners, including David Einhorn and John Paulson lost hundreds of millions on the decline.

Unclear Signals

As previously mentioned, it is primarily only demand for physical metal that is buoying the market. Few headlines or charts have driven prices in either direction, and poor liquidity is also an issue.

There are also problems for gold producers themselves, who are seeing profits fall as the value of the metal decreased amid rising overheads. There had been rumours that produces were hedging prices, but this has since been rejected.

A minor recovery in the US, and European tranquillity mean that there are few investors looking towards the safe haven. Even forex trading has seen lower volumes as the stock market continues record highs.

Europe hasn’t seen any major developments recently, and though there have been worries, things look steady. The US consumer sentiment also looks promising. As long as the future looks more secure, it’s unlikely that prices will see any real headway.

The only major signal that could support gold prices is the suggestion that the printing of money may continue by the US’s Ben Bernanke. Japan is in a similar boat, and there is also the potential for Draghi to begin printing euros. These are all uncertainties however

Many analysts assert that gold is at somewhat of a crossroads; until events in the US, Europe, Japan and China play out, nobody can say for certain whether there’ll be another bullish market any time soon.

Investment Opportunities

While investors who bought gold at the end of last month’s downturn may well have made a good choice, future uneasiness means that gold is unlikely to be a popular commodity to trade. Physical demand may well continue, but this could easily be the only factor preventing another slide.