Gold continues to slide on strong dollar

By Alix Steel

Gold (-GC) prices were following the euro lower after Greece failed to secure its second bailout deal.

Gold for April delivery was down $20.10 at $1,720.20 an ounce at the Comex division of the New York Mercantile Exchange. Gold has traded as high as $1,740.90 and as low as $1,714 an ounce while the spot price was shedding just $9, according to Kitco's gold index.

Silver (-SI) prices were 38 cents lower at $33.36 an ounce while the U.S. dollar index was up 0.6% at $79.40.

Gold prices have now fallen more than 2% in two days on a stronger U.S. dollar. The currency was helped by better U.S. economic data as well as a weak euro, which is facing pressure as the Greek government failed to agree on austerity measures needed to secure its second bailout.

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Private bondholders must also approve a deal on the loss they’ll take when they swap in old bonds for longer-dated ones, a key factor in helping Greece pay down its debt. A failure to convince the International Monetary Fund, European Central Bank and European Union that Greece will cut its deficit substantially could result in a default come mid-March, when the country has 14.5 billion euros of debt maturing.

Gold prices have rallied 5.5% since the Federal Reserve announced its intention to leave rates low until late 2014. In the Commodity Futures Trading Commission's latest commitment of traders report, speculative long positions rose by 24,000 contracts in the week ending Jan. 31, which means traders are starting to rebuild their positions. However, there could be a shift out of gold if investors start to suspect the Fed will raise interest rates earlier than expected.

"Continued weakness may technically bring us to $1,700 area of support," says George Gero, senior vice president at RBC Capital Markets. "We may only be in a corrections phase for now.

Gold mining stocks were mixed Monday. Barrick Gold (ABX) was up slightly at $49.29 while Newmont Mining (NEM) was 0.3% lower at $60.84.

Randgold Resources (GOLD) was rallying 2.7% at $119.28 after announcing earnings of $1.25 a share in the fourth quarter on revenue of $311.5 million. Gold production was up 4% vs. a year ago, profit was up 259% and cash costs were down $1 per ounce. The company raised its dividend by 100% and said gold production for 2012 would be 19% higher, albeit at the lower end of the range. Cash costs are expected to fall to $650 an ounce and towards the $500-an-ounce range by 2014 as the company mines higher grade gold.