Gold falls as investors move into cash

Prices slide despite eurozone jitters as the US dollar remains the haven asset of choice.

By TheStreet Staff Nov 16, 2011 11:23AM

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


Updated at 4:22 p.m. ET


Gold prices fell Wednesday as soaring sovereign borrowing costs across the eurozone prompted a rush into the U.S. dollar.


Gold (-GC) for December delivery settled down $7.90 at $1,774.30 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,784.80 and as low as $1,753.90 an ounce, while the spot price was losing $9, according to Kitco's gold index.


Silver (-SI) shed 63 cents to finish at $33.82 an ounce, while the U.S. dollar index was up 0.1% at $78.01.


Gold continued its recent trend of tracking the euro and moving inversely to the U.S. dollar.


Bespoke Investment Group said the 10-year yield spreads between Germany and other eurozone nations -- the high borrowing costs of certain countries when compared to Germany's low rate -- are hitting 52-week highs. Spain and Portugal are the obvious culprits, as markets have been worried about their ability to pay down debt, but the real surprise was France, the eurozone's second strongest economy.


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Gold's uncharacteristic reaction to trouble in the eurozone -- it would typically be a safe place to store cash as questions circulate over the sustainability of the euro -- is perplexing to many traders.


"Right now what I am really surprised about is a lot of news in the world is quite negative and I would have thought that with all the problems going on in Europe and with governments actually falling that we would be trading above $1,800 an ounce, that there would be safe-haven buying," said Mihir Dange, founder of Arbitrage.


Dange blamed uncertainty for the lack of conviction in gold as well as in all other assets with the exception of the U.S. dollar.


"Gold's gone up to 1,800 a couple of times and rejected that level . . . gold is trapped in a range right now," Dange said. Dange is expecting prices to stay between $1,750 and $1,800 an ounce. "I think there has to be some kind of resolution everywhere for there to be any kind of movement."


Dange is also worried that legendary investor John Paulson might be forced to liquidate more of his position in SPDR Gold Shares (GLD) if stock markets stay weak in order to return money back to clients.


Paulson sold a third of his gold position in the third quarter, which some speculate contributed to gold's tumble down to $1,535 an ounce.


Gold prices in euro terms are high so safe-haven buying is triggering a rush into gold, just not in U.S. dollar terms. "In euro terms gold is nearing last week's high of 1,322 euros," said James Moore, research analyst at FastMarkets. "The weak euro is helping fuel a push towards the life-time high."


Barclays said that "inflows last week (into exchange-traded products) rose to 24.9 tons, taking flows for the month to date to 27.9 tons." For the 25 products Barclay's tracks, gold held in trust closed last week at 2,239 tons, proving that there is demand out there for the precious metal. Barclays expects a move to $1,840 and a break above that level would trigger a move to record highs.


Gold mining stocks floundered Wednesday. Barrick Gold (ABX) fell 1.6% to $51.46. Goldcorp (GG) closed down 1.4% at $52.25, while Randgold Resources (GOLD) dropped 1.2% to $117.97. Shares of Newmont Mining (NEM) finished down 2.4% at $68.99.


The real mover among gold stocks on Wednesday was NovaGold Resources (NG), which brought in a new CEO from Barrick Gold and tapped current top executive Rick Van Nieuwenhuyse to head a copper company to be created through a spinoff. The new CEO, Greg Lang, was most recently president of Barrick Gold North America. NovaCopper expects to begin trading as a separate company in January. NovaGold also announced that investor Thomas Kaplan of Electrum, its largest shareholder, will become chairman of the mining company. NovaGold shares skyrocketed more than 24% on the news to close at $10.95.


Nov 16, 2011 2:03PM
This too shall pass Gold is the only safe place buy on the dips people when gold goes down it is buying gold on a super discount..paper manipulation going on; if you can't hold it you don't own it.
Nov 16, 2011 1:04PM
Not good enough! I need gold to go lower before I buy boatloads of it for a huge profit. DIE GOLD, DIE! (for now, that is). Wink 
Nov 16, 2011 3:02PM
The cycle is nearing the end and gold will surely die with it.  Anyone that believes gold is going to continue surging as it has over the past sixteen months is a stone idiot.  The only reason for it's meteoric rise was because of this country's total and complete lack of confidence in it's clueless president and therefore it's markets.  When he goes so will gold and we can once again get back to the business of building our great country.
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