Gold craters nearly 3% on surging dollar

A rally in the US currency punishes metal prices.

By TheStreet Staff Dec 12, 2011 2:14PM

Image: Gold (© Comstock Images/Jupiterimages)the streetBy Alix Steel


Updated at 4:49 p.m. ET


Gold prices took a beating Monday, settling down almost 3%, as the metal was pummeled by a stronger U.S. dollar.


Gold (-GC) for February delivery dropped $48.60, or 2.8%, to settle at $1,668.20 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,718.60 and as low as $1,660.30 an ounce, while the spot price was down $45, according to Kitco's gold index.


Silver (-SI) fell $1.25, or almost 4%, to finish at $31 an ounce, while the U.S. dollar index was surging 1.1% at $79.51.


Credit ratings agency Moody's said that the intergovernmental changes agreed upon by 26 of the 27 European Union countries last week weren't groundbreaking and that the countries' ratings were still on the chopping block for a review in early 2012. In response, gold was tracking most all assets lower as the dollar remained the haven of choice.

"It's slightly discouraging to people who invest in gold as a 'safety' play that gold hinges directly to the euro currency," says Phil Streible, a senior commodities broker at R.J. O'Brien. Streible, among other traders, is banking on a quantitative easing program from the European Central Bank to save Europe, "and I think that gold players will be rewarded as an 'inflation' play."


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 The ECB's strong stance against buying unlimited bonds -- it has opted instead to provide unlimited three-year funding for banks -- presented a problem for gold Monday. The ECB bought only 635 million euros' worth of government bonds last week, compared with 3.662 billion euros the week before, the least since August.


If that inflation thesis doesn't pan out, investors might dump gold in disappointment. Gold is still up 18% for the year versus the S&P, which is flat, making gold an asset to sell when investors need cash or want to lock in profits.


"Waves of selling from the early morning session broke support" for gold, says George Gero, a senior vice president at RBC Capital Markets. "Stop-loss orders were accelerated," which is when traders automatically sell their positions once gold breaks below a certain price to protect any gains. The lack of momentum in gold has also sidelined traders or bargain hunters looking for that thrust higher.


A slowdown in China is also starting to worry investors. Inflation slowed to 4.2% and import growth also slowed to 22.1% in November. Streible says it's possible China might be buying less gold. "We've seen their inflation come down quite a bit . . . they are still buying a lot of products, they are just going into other things, other raw materials. They are still players, they are just not big players in the gold market right now."


The World Gold Council had estimated that Chinese gold imports could surge to 400 tons this year. Marcus Grubb, the managing director at the World Gold Council, has estimated that China could consume 747 tons of gold in 2011, more than 200 tons shy of India's 2010 consumption rate, which means China couldn't absorb a slowdown in Indian demand but could add a key support to prices. "China's rate of consumption is catching up to India's rate," Grubb said. Reportedly Hong Kong exported almost 86 tons of gold to mainland China in October, up 51% versus the previous month.


"It's normal (for gold) to consolidate after the run that we had to the $1,900 level," says David Morgan, the founder of "I think we are going to see well above those levels in 2012, but I don't think you are going to see a strong rally in the first quarter of 2012."


Mark Arbeter, a chief technical strategist at S&P Capital IQ, is forecasting a decline in the U.S. dollar but would be worried if the U.S. dollar index broke above 80. Arbeter writes that the smart money is betting against the dollar by a wide margin and is bullish on the euro. "We think gold prices could challenge their all-time highs of $1,900 an ounce and potentially challenge the big round number of $2,000 during the first half of 2012."


Gold mining stocks tumbled Monday, along with both the metal and broader equities. Barrick Gold (ABX) finished down 3.9% at $47.88 while Newmont Mining (NEM) fell 2.5% to close at $65.27. Goldcorp (GG) dropped 4.1% to $48.26, and NovaGold (NG) shed 3.2% to end the day at $10.50.

Dec 12, 2011 3:49PM

There is a widely repeated rumor from Europe that provides a very different explanation for why the price of gold is dropping:


According to the Financial Times and several other sources, national central banks are lending their gold reserves to local banks.  These, in turn, are lending out the gold in return for foreign currency.  According to the articles, they are doing so because of a severe liquidity crisis, which exists despite the coordinated action of several national banks a week ago to inject liquidity into the system, and despite the U.S. dollar swaps provided to the ECB by the Fed.    If these rumors are true, they are an indication, first, that the price of gold will continue to plummet in the days ahead.  Second, they indicate that we could be on the verge of a major bank failure; and that the recent ECB attempt to provide liquidity to European banks may be too little too late.

Dec 12, 2011 5:07PM

with the dollar coming up and we are out of iraq, why oh why is oil still so high?

crook's, speculators and the fed's are crook's

Dec 12, 2011 5:06PM
Gold hammered by pushing paper contracts "representing" gold back and forth across the table. It is a fraudulent vehicle and like all frauds, will eventually collapse of its own weight.
Dec 12, 2011 4:35PM

Yeah gold is "plummeting"... though it is still up 20% in the last year, 173% in last 5 years, has been positive for the year every year for over 10 years in a row, and if you look at a 30 year graph it looks like it is going straight up.. but yeah it is "plummeting" today.... from reading this article it looks like the author learned how to write stories straight from the Ministry of Truth in the novel 1984!

Gold craters at 3%? Come on reporters stop with the hype; a crater would be 30%.

Wait a week and see if gold returns back; even at 1650.00 an ounce these financial reporters are ignoring the pink elephant in room. What? The Federal Reserve has pumped so many dollars into US economy that investors are running for safe havens. Those who may not know: the dollar is off the gold standard since the 70's (thanks to Richard Nixon). It's been a free-for-all since then; any excuse to print money is the normal course of action by congress. Why has gas gone from 50 cents to 3.50 a gallon? Inflation         

Dec 12, 2011 6:45PM

When gold was $400 / oz, it was an inflation play.  Now it's a Beanie Baby Bubble.


Anybody wanna buy a Beanie Baby?  They're better than gold.  They're just as cute and if things get really tough, you can burn them in the fireplace for heat.

Dec 12, 2011 7:20PM
 What will be the one world currency? Good bet if will not have the words "IN GOD WE TRUST" Gold standard was sold out many years ago. That's when it all started. The LIES and SMOKE and MIRRORS.  Gold still looks pretty. The only use it will soon have is melting it down to make nasty bullets.  The banks have ruined world governments. (because greed let them) If you are around in the future, you will be trading goods for services, or food.
Dec 12, 2011 9:07PM
Let 'er buck!!!  Yeehawwwwwwww!!!!  This whole stinking rich mans economy is coming it or not.  No longer will the rich be able to afford maids and butlers, or eat caviar and lobster every night.  No, they're are soon to be just like the rest of us peons. These hoity toities are going to learn what its like to have to eat scraps every night.  Maybe even have to spend some time in the homeless shelters.  Now wouldn't that be grand?  I'd give my two loaves of bread and salami to see that!!!!!!  Fu**ing pigs!!!
Dec 13, 2011 7:58AM
Dec 27, 2011 7:05PM
Watch out. What goes up May come down.....
Dec 12, 2011 5:02PM

Just examine the long-term graphs for gold.  You can go to and look at historical prices.  When gold goes up, it goes up very rapidly, but it goes down with a thud, too.  And over the long haul it has always been a bad investment.  If you bought gold in 1980, you would have waited a long, long, time to see any real growth.

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