News of the Irish bailout sent gold prices higher on Monday, in spite of a stronger US dollar. In the short term, experts expect gold prices to experience some moderate volatility as portfolio managers look to cash in on 2010 gains, and money managers pursue buying gold to accumulate a better ownership position in the precious metal. See the following article from HousingWire for more on this.
Gold prices were volatile Monday on the back of a stronger U.S. dollar and as investors digested an official bailout of Ireland.
Gold for February delivery settled up $3.20 to $1367.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price traded as high as $1,370 and as low as $1,354.50 during Monday’s session.
The U.S. dollar index was adding 0.66% to $80.92 while the euro fell 1.11% to $1.30 vs. the dollar. The spot gold price was adding $1.30, according to Kitco’s gold index.
Gold prices stayed in a modest trading range for most of Monday as a stronger dollar tempered gains but technical buying supported prices.
“Tomorrow will be still volatile,” says George Gero, vice president at RBC Capital Markets, “due to all the Euro headlines … Korea and strong dollar.”
Despite the European Union’s attempts to curb the selloff in the euro, investors were still dumping the currency on worries that $113 billion aid package to Ireland might not be able to prevent contagion to Portugal, Spain and Italy. The EU announced new bailout conditions starting in 2013 with more money and revised terms, which could leave bondholders on the hook, to pave the way for bigger financial aid needs.
The euro has sunk 4.4% vs. the dollar in the past week as investors rotated into the perceived safety of the U.S. dollar. A stronger dollar has put modest pressure on gold prices as the dollar-backed commodity becomes more expensive to buy in other currencies. A stronger currency also means it takes less dollars to buy an ounce of gold, pushing the value of the metal down.
“We think there is the risk of further corrections over the next few weeks,” says James Moore, analyst at thebulliondesk.com. “Gold, while vulnerable, should remain cushioned by safe-haven demand as geopolitical, debt default and inflation concerns continue to prompt investor diversification.”
In the short term, gold must contend with book-squaring and profit-taking headed into the end of the year. Some portfolio managers will want to sell gold to show gains to take advantage of the metal’s 27% rally this year, using gold’s intra-day high of $1,424 an ounce. On the flip side, money managers could also pile into gold to show clients they own the metal.
The tug of war on gold will mostly likely lead to increased volatility, especially as traders are forced to either roll over their gold contracts or let them expire before Dec. 1. The gold exchange-traded fund, SPDR Gold Shares(GLD_), currently has 1,285 tons, which has remained unchanged for the last week.
Traders are also trying to figure out if gold prices will complete a head-and-shoulders pattern, which could mean lower prices. Scott Redler, chief strategic officer at T3Live.com, says “$1,356 resistance held, which is starting to create the right shoulder.” Redler says the neckline is $1,310-$1,320 and if gold prices breach that level, they could sink to $1,265 before finding support.
Gold prices, however, should get some help from safe-haven buyers who remain concerned over mounting tensions between North and South Korea, China and the U.S. Over the weekend, China called for an emergency meeting in December to discuss escalating tensions in the region as South Korea and the U.S. conducted military exercises in the Yellow Sea. Invited participants are the two Koreas, the U.S., China, Japan and Russia.
When North Korea torpedoed a South Korean ship on March 26, gold prices popped 1.3% as gold took on its role as a safety net against geopolitical issues. Any immediate upside, however, was tempered by dollar strength.
Silver prices added 42 cents to $27.19 while copper was flat at $3.76.
Gold mining stocks, a risky but potentially profitable way to buy gold, were mostly lower. Kinross Gold(KGC_) was down 2.30% to $17.43 while NovaGold(NG_) was 1.06% lower at $14.10. Other large gold stocks Angico-Eagle(AEM_) and Eldorado Gold(EGO_) were trading at $77.55 and $16.80, respectively.
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