Gold continues to slide on strong dollar

Prices follow the euro lower after Greece fails to secure another bailout deal.

By TheStreet Staff Feb 6, 2012 12:18PM

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.

Feb 6, 2012 5:01PM

When you say that gold has topped for good what do you mean? Do you mean the gold to dollar ratio from 1913, the gold to dollar ratio from 1971, the gold to dollar ration from 1999?


I understand what your saying, however, for 100 years the dollar has been declining against gold even though there were deflationary periods.

Feb 6, 2012 4:52PM
The trouble with gold, as a currency, is that it is too restrictive as a medium of exchange with an increase of global population and economic activity.  Gold, as a commodity with industrial application importance and trinket value, is dependant upon economic stability and growth.  In a depression or deep recession all the gold ends up with a limited ownership that can only be redistributed as an exchange medium through acts of war, thief, taxation or generous gifts of compassion.  When Central Banks agree to exchange notes based on economic activity, it is on what real world commodities are in demand by the consumer, albeit food, energy, clothing or ..
Feb 6, 2012 5:09PM
These biased articles get old. What agenda or thought are they trying to push.
Feb 6, 2012 3:01PM
Feb 6, 2012 6:04PM
Buy, sell and/or hold????? Your choice folks! Make it the right one!
Feb 6, 2012 7:12PM
election year, obama is begging the people to vote for him, i deserve it, RIGHT, i'm getting better as time goes by, glad he is because this country sure isn't. what an ****, stocks will be good until about june, july, and if they stay goinjg good, great, if not then everything i've been reading is wrong. crap will hit the fan before the election day. obama gets back in, we will be a new communist nation, that way china and north korea can visit the new USA
Feb 6, 2012 7:01PM

My bet is that we will see the dow at about a 2 to 1 ratio to gold before its all over. Dont know if the dow will be 5000 with gold at 2500 or the dow will be at 20000 with gold at 10000. Depends on how much they inflate the market. Gold might not be safe but neither are bonds and stocks.


Mish Shedlock and Peter Schiff although differing on the deflation to inflation theories both agree on one thing. Gold is a good hold during both scenarios.


They have been right for the last 10 years overall, (Mish even more so) so I think I will stick with them.

Feb 6, 2012 3:30PM
Gold is a speculative bubble. Ironically, US dollar is scarcer than gold. For decades people borrowed and promised to pay back with interest in the future. The future is here. Pay back time. But entire money supply is not enough to pay the debt. Google for DEFLATIONARY CRASH to understand why US dollar is the place to be at times of deflation. Gold had it's run and has already topped for good or has only one more leg up left. Don't end up buying at the top. People don't need gold to live. Debt is promised in US dollars. Not gold! Beware.
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