Gold loses steam, extends losses

By Alix Steel, TheStreet

 

Updated at 4:06 p.m. ET

 

Gold prices couldn't gain momentum Friday as more confident investors opted for stocks over gold.

 

Gold for December delivery settled down $4.40 to $1,246.50 an ounce at the Comex division of the New York Mercantile Exchange. Gold Friday traded as high as $1,253 and as low as $1,237.90. The U.S. dollar index was gaining slightly to $82.70 and the euro was up 0.2% to 1.27 against the dollar. The spot gold price was up $1.50, according to Kitco's gold index as investors opted for the physical metal over futures.

 

Outside of the tech sector, which held the Nasdaq  ($COMPX) to a 0.3% gain, stocks fared well Friday. The Dow Jones Industrial Average ($INDU) gained 48 points to close at 10,463, and the S&P 500 ($INX) finished up 5 points, or 0.5%, at 1,110.

 

Gold buying was lackluster Friday as investors shrugged off European sovereign debt worries and focused on positive data out of the U.S. and Asia as well as Basel III.

 

Officials from 27 countries will be meeting Sunday in Basel, Switzerland, to discuss the details of Basel III, which in essence will require banks to hold more capital to better protect them against another financial crisis. Big banks might be forced to raise more money than smaller ones. According to reports, this will impact banks in the U.S. less like Bank of America (BAC) and JPMorgan (JPM) as they have already been raising cash.

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European banks, however, are now in the spotlight again. Germany announced earlier this week that 10 of its biggest banks will need to increase liquidity and Deutsche Bank (DB) is reportedly in the works to raise €9 billion through a share offering in order to start meeting requirements.

 

The meeting comes as markets started to panic this week that eurozone banks were saddled with more destructive sovereign debt than previously thought, but the stricter rules are helping to reassure investors. Traders were also ignoring gold on the news that China's imports surged in August and that Japan's economy grew at a faster pace than expected.

 

Although gold did manage to settle at a record high this week, it has yet to surpass its intraday high of $1,266 an ounce. Some analysts are pessimistic in gold's ability to do so in the short term.

 

Jon Nadler, senior analyst at Kitco.com believes that a lack of crisis could push gold prices lower. "I think that $1,245 really needs to hold ... absent that we could revisit $1,200 actually." Nadler says that if another currency or sovereign debt crisis materializes, however, gold could quickly reverse directions.

 

In other gold news, the International Monetary Fund announced a 10 ton sale of gold to Bangladesh. The IMF has been trying to unload 403.3 tons of gold since last September and currently has about 181 tons remaining. There are some rumors, however, that funds like Sprott Asset Management were lobbying the IMF for its gold for its redeemable gold fund Sprott Physical Gold Trust (PHYS) but were denied.

 

India bought 200 tons of gold from the IMF in November 2009 at then-record high gold prices of $1,045 an ounce for a total of $6.7 billion.

 

Central banks in general have been transitioning into net buyers of gold rather than net sellers. Although the governments consider fundamentals like dollar weakness and the sustainability of gold as money, they don't trade gold; they buy it as an investment. They will buy gold when they feel their gold reserves are too low when compared to their other holdings. Central banks tend to be price-agnostic and are heavy buyers.

 

Silver prices settled down 1 cent to $19.85 per ounce while copper closed 4 cents lower at $3.41 per pound.

 

Gold mining stocks, a risky but sometimes more profitable way to buy gold, closed mostly higher Friday. Barrick Gold (ABX) gained 1.3% to $44.75 and Newmont Mining (NEM) finished 0.85% higher at $60.73. Randgold Resources (GOLD) fell slightly to $93.88 while Goldcorp (GG) added 0.1% to close at $41.45.

 

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