Gold for December delivery closed up $3.80 to $1,782.20 an ounce in mid-November, struggling to make gains as investors decide whether to hold on to the commodity or sell it off for cash. Experts argue gold is still a safe haven, and will continue to make future gains as the strength of the dollar is drawn into question. Eurozone instability is also expected to fortify positions in gold despite big moves to dump the metal by prominent traders. Investors should expect some waffling in the near term, but veteran gold bulls are betting on overall price increases. For more on this continue reading the following article from TheStreet.
Gold prices eked out a modest gain Tuesday as investors battled between buying gold as a safe haven and dumping it for cash.
Gold for December delivery closed up $3.80 at $1,782.20 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,787.80 and as low as $1,760.90 an ounce while the spot price was shedding $1, according to Kitco’s gold index.
Silver prices added 43 cents to close at $34.45 an ounce while the U.S. dollar index was up 0.46% at $77.88.
Gold prices seesawed during most of trading on Tuesday and managed to eke out a modest gain after November’s empire manufacturing data came in stronger than expected — signaling growth not contraction — and prices producers pay for goods fell by 0.3%.
The data prompted more of a "risk on" trade, which meant investors had less need for the safety of the dollar and started buying other assets including gold. Any meaningful price dip in gold has also been met with strong buying.
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The move seems counter intuitive for gold, but gold’s moves have been more inversely correlated to the U.S. dollar rather than any fundamental.
"Gold is still a safe haven," says Jeff Clark, Casey Research’s Senior Precious Metals Analyst, "but it is a tradable asset and people buy gold for different reasons," from inflation, deflation, debt worries, panic to economic calamity. An any given day one of these factors becomes more prevalent, argues Clark.
In the latest commitment of traders report for the week ending November 8th, speculative traders added 17,000 long positions and 1,275 short positions. On one hand, that means more committed long buying. On the other, the positions might be the first to be liquidated if traders have to raise cash fast. The tug-of-war translates into one thing: volatility.
Clark believes that gold needs time to breathe. "The run up that we had from August and September was dramatic enough that it’s not surprising that it will take some time for the gold price to consolidate before it makes new highs," which he thinks might be next year.
Longer term, Clark is still bullish on gold, saying that currently 10% of Federal revenue now goes to debt but that according to the Congressional Budget Office that number could triple. "That is a dramatic amount and that is going to have an impact on the purchasing power of the dollar and that is the kind of environment that one wants to hold gold in."
If Europe triggers a global slowdown, Clark says a portion of investors would "ditch out" of gold and that gold won’t rise in a deflationary environment but it won’t collapse either. "The greater the deflationary reaction in the markets, the greater the inflationary reaction by the Federal Reserve and other central banks," which means more currency debasement.
Gold Tuesday was also digesting the news that John Paulson dumped 11 million shares of the SPDR Gold Shares(GLD) in the third quarter. Many experts have been worried of mass liquidation by Paulson and what that would do to investor psychology in the gold market.
The GLD currently holds 1,268 tons, which is relatively unchanged since the start of the second quarter. When investors sell — and if there are no buyers — then the GLD must sell some of its gold. If there is rampant demand, then the ETF has to buy bullion. Occasionally the fund must sell some gold to pay for expenses, but the fact that tonnage is relatively unchanged means that there have been enough buyers regardless of Paulson’s offload.
Scott Redler, chief strategic officer for T3Live.com, says that Paulson’s sale means that he is "out of the way … now gold is acting much better." Futures trader Anthony Neglia, president of Tower Trading, says that any Paulson sale was already factored into the market. "I think that it’s already known [that he would sell]" and that it doesn’t come as a huge surprise. The gold price is currently holding and Neglia said it was bullish that there was "no downward pressure to the gold price."
Gold mining stocks were mixed Tuesday. Kinross Gold(KGC) was losing 0.71% to $13.93 while Yamana Gold(AUY) was slipping slightly at $16.17. Other gold stocks, Agnico-Eagle(AEM) and Eldorado Gold(EGO) were trading higher at $46.71 and $19.07, respectively.
This article was republished with permission from TheStreet.