Gold Prices End Lower as Cash Wins Out
By Alix Steel - 11/16/11 - 3:17 PM EST
NEW YORK (TheStreet ) -- Gold prices were jittery Wednesday as soaring borrowing costs across the eurozone prompted a rush into the U.S. dollar.
Gold for December delivery lost $7.90 to close at $1,774.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,784.80 and as low as $1,753.90 an ounce while the spot price was losing $9, according to Kitco's gold index.
Silver prices shed 63 cents at $33.82 an ounce while the U.S. dollar index was up 0.06% at $78.01.
Gold continued its theme of late of tracking the euro and moving inversely to the U.S. dollar.
"Gold continued to see cautionary selling after more eurozone headlines impacted it negatively," says George Gero, senior vice president at RBC Capital Markets. "There are possibly more portfolio managers opting for cash and not entering into any risk."
Bespoke Investment Group said the 10-year yield spreads between Germany and other eurozone nations -- high borrowing costs of certain countries as compared to Germany's low rate -- are hitting 52-week highs. Spain and Portugal are the obvious countries, as markets have been worried about their ability to pay down debt, but the real surprise was France, the eurozone's second strongest economy.
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Gold's uncharacteristic reaction to trouble in the eurozone -- it would typically be a safe place to store cash as questions circulate over the sustainability of the euro -- is perplexing to many traders.
"Right now what I am really surprised about is a lot of news in the world is quite negative and I would have thought that with all the problems going on in Europe and with governments actually falling that we would be trading above $1,800 an ounce, that there would be safe-haven buying," said Mihir Dange, founder of Arbitrage.
Dange blamed uncertainty for the lack of conviction in gold as well as in all other assets with the exception of the U.S. dollar.
"Gold's gone up to 1,800 a couple of times and rejected that level ... gold is trapped in a range right now," Dange said. Dange is expecting prices to stay between $1,750 and $1,800 an ounce. "I think there has to be some kind of resolution everywhere for there to be any kind of movement."
Dange is also worried that legendary investor John Paulson might be forced to liquidate more of his position in the SPDR Gold Shares(GLD) if stock markets stay weak in order to return money to clients. Paulson sold a third of his gold position in the third quarter, which some speculate contributed to gold's plummet to $1,535 an ounce.
Gold prices in euro terms are high so safe-haven buying is triggering a rush into gold, just not in U.S. dollar terms. "In euro terms gold is nearing last week's high of 1,322 euros," said James Moore, research analyst at FastMarkets. "The weak euro is helping fuel a push towards the life-time high."
Barclays said that "inflows last week into Exchange Traded Products rose to 24.9 tons, taking flows for the month to date to 27.9 tons." For the 25 products Barclay's tracks, gold held in trust closed last week at 2,239 tons proving that there is demand out there for the precious metal. Barclays expects a move to $1,840 and a break above that level would trigger a move to record highs.
Gold mining stocks were mixed Wednesday. Kinross Gold(KGC)was down 0.5% to $13.92 while Yamana Gold(AUY) was losing 0.37% at $16.14. Other gold stocks, Agnico-Eagle(AEM) and Eldorado Gold(EGO) were trading up at $47.16 and $19.18, respectively.
--Written by Alix Steel in New York. |
