Gold slides with stocks as dollar strengthens

Prices continue on a downtrend as investors wonder whether a eurozone solution will help or hurt the metal.

By TheStreet Staff Oct 13, 2011 10:47AM

Image: Gold (© Anthony Bradshaw/Photographer)By Alix Steel, TheStreetTheStreet

 

Updated at 2:15 p.m. ET

 

Gold prices dipped Thursday as stocks sagged and as a stronger U.S. dollar weighed on the metal.

 

Gold (-GC) for December delivery fell $14.10 to settle at $1,668.50 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,686.10 and as low as $1,654.30 an ounce while the spot gold price was down $9.80, according to Kitco's gold index.

 

Silver (-SI) settled down $1.12 at $31.68 an ounce while the U.S. dollar index was up 0.1% at $77.11.

 

The European sovereign debt crisis -- which seems far from a resolution, despite leaders preparing for the G-20 meeting this weekend -- is a mixed bag for gold. Worries could prompt haven buying, but could also spur selling as investors remain tentative and have been quick to liquidate any asset that has outperformed.

 

Most chart watchers are looking for gold to break through and hold the $1,685-an-ounce level before they can be comfortable looking for another leg up for gold prices.

 

"Gold for the moment continues to base build above the $1,650 level," says James Moore, research analyst at FastMarkes.com, "as the metal remains underpinned by seasonally strong physical demand and retail investment interest."

 

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Gold will also remain tied to the U.S. dollar as the inverse correlation between the two continues. The U.S. dollar was rallying modestly Thursday after hitting a three-week low, which was making the dollar-backed metal more expensive to buy in other currencies, weighing on prices.

 

If the European Central Bank is forced to pump more money into the system as a backstop to recapitalize European banks, then the euro might sink, pushing the dollar higher and pressuring gold. On the flip side, more stimulus is inflationary, and prices in the eurozone already rose 2.5% in September, so investors may look to gold as an alternative to paper currencies.

 

"We've already seen the Bank of England release another round of quantitative easing," says Will Rhind, head of U.S. operations for ETF Securities, "and the liabilities are such in Europe that one would expect any kind of bailout package or rescue package to involve more stimulus from the Central Bank and others."

 

Rhind thinks that gold prices will head higher towards the end of the year, but without a catalyst it's hard for gold to shake itself out of its current trading range. "Gold is caught in a little bit of a hybrid push and pull," says Rhind. With the number of people filing for jobless claims falling only 1,000 last week and the previous week's figure revised up to 405,000, a lackluster macroeconomic environment will keep spilling over onto the gold market.

 

Phil Streible, senior market strategist at MFGlobal, is prepping for a correction in the gold prices as stocks flounder. "(Gold's) slow grind up makes me think gold prices could correct . . . if it takes out $1,650 then $1,605 is the target." Streible is looking for a two-day close above $1,690 before adding more long positions.

Gold mining stocks were trading lower Thursday as broader equities struggled. Barrick Gold (ABX) was down 2.2% to $47.14, while Newmont Mining (NEM) was slipping 0.8% at $63.58. AngolGold Ashanti (AU) was shedding 0.8% at $41.39, and Goldcorp (GG) was falling 2.4% to $46.72.

 

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