Gold pushes higher on ECB action

Prices rise on reports that the European Central Bank will work with the International Monetary Fund to help bail out floundering eurozone nations.

By TheStreet Staff Dec 2, 2011 3:30PM

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


 

Gold prices settled higher Friday as the European Central Bank made plans to pump money into the International Monetary Fund to help struggling European nations.

 

Gold (-GC) for February delivery settled up $11.50 to $1,751.30 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,767.10 and as low as $1,741.70, while the spot gold price was up $7, according to Kitco's gold index.

 

Silver (-SI) slipped 6 cents to finish at $32.69 an ounce. The U.S. dollar index  was up 0.4% at $78.65.

 

Friday was a mixed bag for gold. Bloomberg reported that the European Central Bank could lend 100-200 billion euros to the International Monetary Fund, which would in turn lend that money to weaker European countries. The move would get around the European Union treaty that forbids one European country from bailing out another. Such a maneuver would also be relatively inflationary, which piggy-backs on the move by central banks earlier this week to make more dollars available at cheaper prices. That news helped to support gold.

 

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On the flip side, the U.S. economy added a net 120,000 jobs in November, including 140,000 private-sector jobs. Upward revisions showed the economy also added an extra 72,000 jobs in October and September. The good news propped up the dollar, which tempered gains in gold.

 

U.S. stocks were also holding up, which meant traders had less need to sell gold for cash. Physical buying was fairly muted today, while the futures market was on the rise. This suggests that part of the rally could be attributed to short-covering going into the weekend -- traders not wanting to be caught betting against the metal.

 

David Morgan, founder of Silver-Investor.com, says that a third of the rally today can be attributed to short covering. "Every Friday is a pretty big day in the futures market," says Morgan, "a lot of the big players square their books on Friday so they don't have any big positions headed into the weekend."

 

Stephen Eubanks, director of institutional sales trading at Mr TopStep, is looking at the technical patterns in gold and predicts that prices will make an "explosive" move one way or another in the next couple of days. If stocks mount a big rally, Eubanks predicts that gold will sell off despite the fact the two have been moving together of late.

 

"Guys are stuck short the S&P (so they think), 'What can I sell if I have to make any margin adjustments?'" and gold is an asset of choice. "You would rather sell something down 1% than a stock up 10% . . . take your helmet to work, you are going to need it."

 

Gold mining stocks were mostly lower Friday. Barrick Gold (ABX) was down 2.9% to $51.30 while Randgold Resources (GOLD) was losing 2.5% at $104.18. Goldcorp (GG) was falling 3.1% to $51.87, and AngloGold Ashanti (AU) was down 2.1% to $47.41.

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