Gold falls as dollar gains

Prices lose steam after hitting a record high on Friday. Gold stocks and silver prices also drop.

By TheStreet Staff Oct 4, 2010 10:56AM

TheStreetBy Alix Steel, TheStreet

 

Updated at 4:27 p.m. ET

 

Gold prices settled lower Monday as the U.S. dollar gained value.

 

Gold for December delivery settled down $1 to $1,316.80 an ounce at the Comex division of the New York Mercantile Exchange. Gold today traded as high as $1,321.30 and as low as $1,313.40.

 

The U.S. dollar index was adding 0.5% to $78.48, while the euro was falling 0.8% to $1.37 versus the dollar. The spot gold price was slipping $3.80, according to Kitco's gold index.

 

Stocks had a worse day ahead of third quarter earnings results, as the Dow Jones Industrial Average ($INDU) fell 78 points, or 0.7%, to  10,751. The S&P 500 ($INX) lost 9 points, or 0.8%, to 1,137, and the Nasdaq ($COMPX) finished down 26 points, or 1.1%, to 2,345.

 

Gold prices lost steam Monday after hitting a record high of $1,317.80 on Friday. Gold's gains were tempered by a stronger U.S. dollar, which gained against the euro on a State Department travel alert warning of a possible terrorist attack in Europe.

Gold investors are in wait-and-see mode until Friday's unemployment report and Alcoa's (AA) third-quarter earnings report Thursday. Gold climbed 4.8% in September as investors bet the Federal Reserve would print more money to lend to the government, a move that traders expect will be announced at the Fed's next meeting on Nov. 2-3.

 

The unemployment rate is expected to rise to 9.7%, but the private sector is expected to have add 60,000 jobs, according to Briefing.com.

 

If the number falls short of forecasts, analysts expect the Fed to provide monetary easing. If the data are better than expected, analysts worry the Fed might not purchase as many bonds, which would hurt traders who are building gold positions as a hedge against inflation.

 

Scott Redler, chief strategic officer for T3Live.com, says gold prices can probably surge to $1,400 an ounce by the end of the year but "this is probably a spot . . . to lighten up a little bit."

 

Gold investors are also looking to other central bank meetings this week, particularly in Japan. The Bank of Japan's two-day policy meeting is expected to result in more monetary easing as Japan decreases the value of the yen in order to help exports and its struggling economy.

 

International Monetary Fund and World Bank leaders will meet Friday in Washington, and brewing currency wars will likely be discussed. The House of Representatives recently passed a bill that would allow higher taxes on Chinese imports to force China to let its currency rise in value.

 

Any kind of currency war would be good for gold as the

metal becomes a more attractive form of money. The Financial Times reported that JPMorgan (JPM) reopened a gold vault that had been inactive since the 1990s as investor demand for the physical metal pops.

 

JPMorgan stores the gold for Ishares Comex Gold Trust, which currently holds 3.1 million ounces and ETFS Physical Gold Shares (SGOL), which has 752,017 ounces. Although the bank can store the gold with other custodians, it mainly holds the gold in vaults in New York, London, Toronto and Zurich.

 

Silver prices settled down 2 cents to $22.04 per ounce while copper lost 3 cents to $3.66 per pound.

 

Gold mining stocks, a riskier way to buy gold, fell Monday. Barrick Gold (ABX) closed down 2.2% to $45.98 while Newmont Mining (NEM) lost 1.5% to finish at $62.74. Randgold Resources (GOLD) closed 0.5% lower at $102.77, and AngloGold Ashanti (AU) fell 2% to $46.14.

 

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