Gold Up, Still Set for Biggest Weekly Drop in 4 Months

Before you go, we thought you'd like these...
Before you go close icon
Gold up, still set for biggest weekly fall in 4 months
Deutsche Bundesbank, Frankfurt am Main/AP
By Clara Denina

LONDON -- Gold rose Friday ahead of a series of speeches by U.S. Federal Reserve officials but was still on track for its biggest weekly fall since November following the Fed's hints of an interest rate hike in the first half of 2015.

Fed officials including Richard Fisher, James Bullard and Narayana Kocherlakota are due to speak later Friday after Fed Chair Janet Yellen surprised markets mid-week by suggesting the possibility of raising interest rates early next year.

Spot gold was up 0.6 percent to $1,336.40 an ounce by 1508 GMT (11:08 a.m. Eastern time), after falling to $1,320.24 on Thursday, its weakest since end-February.

U.S. gold futures gained 0.5 percent to $1,336.80 an ounce.

On Monday bullion briefly touched a six-month high of $1,391.76 on tensions in Ukraine and concerns about growth in China before the focus shifted towards the U.S. monetary stance. It was on course for a 3.1 percent weekly fall.

"After the Fed policy meeting we saw gold fall and touch support around $1,320," MKS SA head of trading Afshin Nabavi said.

"But with tensions again escalating between Russia and the West, the market has become more jumpy because it is not only the macroeconomics driving prices but also the political situation, at least in the short term."

European and U.S. shares edged higher, while the dollar hovered near a three-week high against a basket of major currencies and 10-year U.S. Treasury yields rose above 2.7 percent.

"The main longer-term factors remain expectations for higher yields, higher interest rates and a stronger dollar, which are negative for the metal," %VIRTUAL-article-sponsoredlinks%ABN Amro commodity analyst Georgette Boele said.

Low interest rates, which cut the opportunity cost of holding non-yielding bullion above other assets, had been a key factor driving bullion higher in recent years.

An escalation of U.S. sanctions against Russia over the crisis in Crimea kept investors cautious, giving support to gold, usually seen as an insurance against risk, analysts said.

U.S. President Barack Obama raised the stakes in the East-West confrontation on Thursday by targeting some of Russian President Vladimir Putin's closest long-time political and business allies with personal sanctions.

Physical Buying

The physical sector noted light buying from jewelers, but demand from main consumer China remained slow because of a weak yuan. Premiums for gold bars in Hong Kong were unchanged from last week at $1 an ounce to the spot London prices.

China's yuan fell to a 13-month low on Friday and was set to post its biggest weekly fall after the central bank lowered the midpoint of its permitted trading range, which is seen as a signal of official comfort with the currency's recent losses.

Weakening differentials between 99.99 percent purity gold on the Shanghai Gold Exchange and cash gold discouraged imports.

"Shanghai gold exchange is still at discounts to spot gold, and the market wants to know if the yuan will continue to depreciate," a physical dealer in Hong Kong said.

Gold jewellery exports from India edged up 1 percent in February to $718.36 million from a year earlier, an industry body statement said on Thursday.

In other precious metals, palladium rose 4 percent to $795.00 an ounce, its highest since August 2011, boosted by the launch of two exchange-traded funds in South Africa and increasing sanctions by Western countries on main producer Russia.

Silver rose 0.6 percent to $20.39 an ounce and platinum gained 0.5 percent at $1,435.50 an ounce.

-Additional reporting by Lewa Pardomuan in Singapore.

Gold Plunges: 5 Ways to Buy It At a Bargain
See Gallery
Gold Up, Still Set for Biggest Weekly Drop in 4 Months

What's involved: You can buy gold bars or coins from coin dealers across the country. Many coin dealers have online businesses that will ship gold directly to your home.

Pros: You have the gold in your possession, avoiding any risk of third-party misconduct that other methods of investing in gold entail. Some investors enjoy the coin-collecting aspect of gold bullion coins.

Cons: You'll pay a markup to the current spot price to buy physical gold and might have to accept a discount when you sell it back. Also, you have to find and pay for a safe place to store your gold.

What's involved: Some coin dealers offer pool accounts, which allow you to buy gold but arrange to have it stored with the dealer rather than taking delivery. At any time, you then have the option either to sell the gold back or arrange to have the dealer send you a physical coin or bar corresponding to your pool-account position.

Pros: You have all the benefits of owning gold, but the dealer remains responsible for its care. You avoid dealing with shipping and insurance costs and have the assurance that it's held in a secure facility. The premiums for buying and discounts for selling also tend to be smaller than with physical gold.

Cons: To take possession of the gold, you'll have to pay shipping costs and other fees. You also have to trust that the dealer running the pool account will take all necessary steps to protect it from theft or other dangers.

What's involved: Gold futures contracts allow you to buy the right to take delivery of gold at a specified future date. Futures contracts tend to track the changing spot price of gold, paying you profits when prices rise and losing money when they fall. Most futures investors sell back the contract before it expires, never taking delivery of the physical gold underlying the contract.

Pros: You get the potential financial benefits of owning gold without worrying about storing it. You also don't have to come up with the full value of the underlying gold, as futures contracts require only a small margin balance covering a fraction of the gold's total value.

Cons: Futures contracts are only available through specialized brokerage accounts, and there are commissions involved. Most futures contracts may provide too much exposure, as a standard contract corresponds to 100 ounces, worth about $140,000 at current prices. You may have that much in your portfolio to invest, but putting it all into gold futures could give you too much exposure to one commodity.
What's involved: Exchange-traded funds like SPDR Gold (GLD) own vast holdings of gold bullion. Each share of SPDR Gold has a value of just under a tenth of an ounce of gold, and those shares rise and fall with the price of gold bullion.

Pros: Gold ETFs take responsibility for storage and protection of the gold in their possession, saving you the hassle and cost of owning physical gold.

Cons: Although many gold ETFs own physical gold, some gold ETFs use derivatives rather than bullion to track changing gold prices. For those ETFs, you run the risk that the derivatives involved won't move in lockstep with gold prices, potentially causing you to miss out on a gold-price increase.

What's involved: Hundreds of public companies mine gold. When gold prices rise, they earn more for the gold they produce, tying their value to that of the yellow metal itself.

Pros: Unlike other investments, mining stocks can actually produce income. Some miners even pay dividends to shareholders.

Cons: Mining stocks don't always track the price of gold, as other factors such as labor disputes and production costs can cause miners to suffer financial difficulties even when gold prices are high. Lately, gold-mining stocks have had far worse returns than bullion due to rising costs and falling profit margins.


Each of these five ways to add gold to your portfolio has pros and cons. But if you see the value of having gold among your investments, they're all worth considering to give you the gold exposure you want.


More from DailyFinance:

America's Nine Most Damaged Brands

5 Bubbles That Ended Badly

An Iron Throne for Your Golden Years: Our 'Game of Thrones' Stock Picks

Read Full Story

People are Reading