Gold Prices Fall as Dollar
Hurts Global Purchasing
By DAVID BOGOSLAW
Dow Jones Newswires
NEW YORK -- Gold prices continued their descent Friday, with no relief in sight as weakness in foreign currencies relative to a potent U.S. dollar hammered away at global purchasing power.
Dollar-denominated gold appears more expensive in terms of local currencies when they lose value against the U.S. currency, encouraging producers to sell forward to lock in higher prices and damping consumer demand.
December gold on the Comex division of the New York Mercantile Exchange fell $1.30 to $272.10 a troy ounce.
The Australian dollar, which closely tracks the euro, fell back to trade at 53.73 U.S. cents on Wednesday, pushing gold in Aussie dollar terms to A$507, "a level not seen in quite a while and pretty attractive" to producers, according to Bridget Fraser, managing director of metals trading at Australian bank MacQuarie Inc. in New York.
"Weakening in the currencies is destroying purchasing power around the world," lamented Ian MacDonald, manager of precious metals trading at the German Commerzbank in New York. "Jewelry demand has certainly been impacted. Every time the currencies go down, gold has to adjust."
The fall is traditionally a strong season for physical demand as a confluence of holiday buying in cultures worldwide brings consumers to the market. But with the euro under constant pressure, European demand has been minimal and a weak rupee part of the reason India has abstained from buying, said Leonard Kaplan, president of Prospector Asset Management in Evanston, Ill.
It hasn't been for lack of trying that gold prices are now wavering on the brink of new lows.
"Everything that was meant to make [gold] go higher hasn't," said MacQuarie's Mr. Fraser.
"We had the anniversary of the [Washington] accord, that didn't do it. We had the euro intervention [on Sept. 22], that didn't do it, and we had the ECB interest rate increase, and that didn't do it."
There had been faint anticipation of another price spike on the first anniversary of the Washington Accord on Sept. 26, under which 15 European central banks agreed to limit their gold sales over the next four years to no more than 400 tons a year. Prices spiked briefly to $340 a troy ounce last year following the announcement.
Neither did the European Central Bank's 25-basis-point interest rate increase Thursday help lift the euro and with it the price of gold, because Europeans "have no confidence in the currency," in the view of Commerzbank's Mr. MacDonald. "[The ECB] isn't doing anything to ensure fiscal discipline. People are afraid to own it."
All of which proves that gold remains inextricably linked to the fortunes of the greenback, which has held firm despite languishing U.S. equities markets and a general consensus that an economic slowdown has been in effect since mid-summer.
In fact, repeated instances all year long have shown that gold prices rally only when there are sufficiently large short positions in the market. Traders put on short positions in anticipation of lower prices and are often forced to cover them by buying them back when there are signs of prices rising instead.
In other commodity markets:
HOGS: Futures fell on the Chicago Mercantile Exchange, reflecting weakness in the cash market. The December contract dropped 0.92 cent to 52.50 cents a pound. Analysts said packers are reducing their bids while farmers are less busy with harvest and moving more hogs to market. In addition, retail buyers didn't embrace higher prices when packers tried to push the product market up. Ample beef and chicken availability allowed retailers to simply choose other meats when they felt pork prices rose too much.
COCOA: Prices retreated due to selling by speculators and producers, traders said. The December contract fell $5 to $830 a metric ton. Speculators were selling futures they bought during the rally of the previous three sessions, when prices rallied $56 due to worries about escalating political tension in Ivory Coast ahead of the Oct. 22 presidential elections.
Write to David Bogoslaw at david.bogoslaw@dowjones.com |
