Gold is considered a safe investment when stock, bond, and currency markets seem risky. As a result, gold prices have been soaring lately on investors' concerns about debt crises in Europe and sluggish economic growth in the U.S., a phenomenon commonly referred to as a flight to safety.
When investors' sentiments improve, gold prices should decrease as investors pull out of gold and reenter the stock market. The 0.3% decrease in gold futures prices today, the second price drop in as many days, could indicate that investors are increasingly more confident that markets will soon stabilize.
"Gold futures fell for the second straight day on optimism that policy makers in Europe are moving closer to resolving the region's debt woes, cutting demand for the precious metal as a haven," write Nicholas Larkin and Pham-Duy Nguyen of Bloomberg.
Edel Tully of UBS AG believes the market is expecting a positive outcome from the upcoming EU summit, add Larkin and Nguyen in their article.
The euro also gained against the dollar in trading today, which reflects both the improving market sentiment regarding Greek debt and the worsening sentiment regarding the impasse over the national debt limit between the Obama administration and Congress.
Congress has until August 2 to finalize a deal regarding the budget, which will likely involve raising the debt limit, a bevy of budget cuts, and possibly tax rate hikes. If the legislators fail to come to terms, the Federal government would shut down for the first time since the Clinton administration and, more gravely, could default on its debt for the first time ever. This would severely hurt the US' pristine credit rating, which is currently being monitored for revision by the rating agencies.
Interested in turning this news into an investing idea? To help you with your own research, here is a list of gold stocks that have seen sharp decreases in shares shorted over the last month. Do you think the flight to safety is over?
List sorted by decrease in short interest as a percentage of the share float. (Click here to access free, interactive tools to analyze these ideas.)
1. Allied Nevada Gold Corp.
2. NovaGold Resources
3. Seabridge Gold
5. Royal Gold
6. Harmony Gold Mining Co.
7. Jaguar Mining
8. Compania de Minas Buenaventura
9. Gold Fields
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Andrew Dominguez does not own any of the shares mentioned above. Data sourced from Finviz and Yahoo! Finance.