Gold price lifted out of danger zone

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery on Tuesday attempted a comeback of sorts, recovering from a two month low.

By the close of regular trade gold was changing hands for $1,285.20 an ounce, up over $6, after earlier hitting a day high of $1,291.90. The gains follow six weak sessions which saw the metal lose 2% in value.

Tuesday’s move lifted the metal above its 200-day moving average – a bullish technical sign – after bouncing off support at $1,272 and could now attempt a move back above $1,300 an ounce.

The gains in the price of gold came amid fresh money flowing into US equities with the S&P 500 setting new records above the 2,000 point level on Tuesday.

Minutes of the last US Federal Reserve meeting showing the US central bank opting for a more hawkish tone as the country’s job picture continues to improve sparked last week’s sell-off on the gold market.

Short term bond yields have also been rising on expectations that the bank might raise rates a bit sooner than expected.

Bond yields are negatively correlated with the gold price as the metal is not income producing, but rising interest rates do not necessarily turn gold into a one-way bet.

During the last Fed tightening cycle from June 2004 to June 2006 the price of gold actually increased by about 50%.

And soaring equity markets and sky-high stock valuations may push investors back into gold. London-based ETF Securities, an institutional research firm, sees money flowing back into hard assets:

“Gold and silver have had substantial corrections offering attractive relative value propositions and remain near the cost of production. Fundamental value and relative valuations normally prevail in the long term as many prudent investors have continued to diversify into the precious metals.”