Gold slides on firm dollar

Prices languish above $1,600 an ounce as the dollar's recent rally keeps a lid on the metal.

By TheStreet Staff Jan 9, 2012 11:15AM

By Alix Steel


Updated at 4:57 p.m. ET


Gold (-GC) prices settled slightly lower Monday, weighed down by a firm U.S. dollar.


Gold for February delivery dipped $8.70 to settle at $1,608.10 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,624.60 and as low as $1,605.70 an ounce while the spot price was down $5.60, according to Kitco's gold index.


Silver (-SI) prices rose 10 cents to finish at $28.78 an ounce while the U.S. dollar index was off 0.3% at $80.98.


Gold prices were stuck in a tight trading range as a stronger dollar kept a lid on prices, while bargain buying prevented a deeper sell-off. The metal's $8 decline during the day was gobbled up by bargain hunters looking to buy gold at a lower price. The SPDR Gold Shares (GLD) has not added or dumped any tons of gold for two and a half weeks. The ETF still holds 1,254 tons of gold, illustrating that there’s no rush into the metal but no disenchantment either.


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The latest commitment of traders report showed the same kind of neutrality. For the report ending Jan. 3, speculative long positions grew by almost 2,000 contracts while speculative short positions added 1,700, almost canceling each other out.


"With the exception of one week in mid-October 2011 . . . net long positions in the gold market are down to their lowest levels since May 2009," says James Steel, analyst at HSBC Securities. "We believe long positions are likely to rebuild as investors recognize they are historically low and the market is . . . above its recent low of $1,521 set in December 2011."


Coin sales from the U.S. Mint were 9% higher in December year over year, but full-year sales were down 13%, according to Barclays Capital.


For gold to find any kind of momentum, prices need to break above the 200-day moving average, now around $1,634 an ounce -- a level many traders are waiting for before jumping back in.


Gold is also looking to the euro for direction. Although the currency fell 2.2% versus the dollar in the first week of 2012 – implying that gold might be trying to shake off any direct correlation to the euro -- headlines out of Europe will continue to sway the gold price.


The Eurosystem's balance sheet, which includes national central banks and the European Central Bank, grew by 729 billion euros since the second week of August -- the ECB is pumping a lot of money into the system. Although the extra cash hasn't made it into mainstream inflation expectations yet -- Eurozone inflation is currently around 2.8% -- those worried about the currency’s future weakness might turn to assets like gold for protection.


"In answer to the question, 'Why doesn't the ECB adopt a bazooka and undertake large-scale, quantitative easing to address the sovereign debt crisis?', surely the answer is, 'It already has,'” wrote Societe Generale in a recent note.


Gold mining stocks closed mixed Monday, with Barrick Gold (ABX) gaining 0.4% to $47.71 and Newmont Mining (NEM) falling 0.8% to finish at $61.48.


Eldorado Gold (EGO) closed flat at $14.39 after announcing 2011 production guidance that beat expectations and saying that cash costs only rose $5 per ounce. The miner expects to produce 730,000-775,000 ounces of gold in 2012 at a cash cost of $430-$450 an ounce. The company also raised its dividend.


Goldcorp (GG) finished 1.8% higher at $44.73 after the company announced that its five-year gold production forecast will grow 70%. The mid-tier miner is now expected to produce 4.2 million ounces of gold in 2016 and total cash costs should stay below $400 an ounce for the next five years.


Total gold production for 2011 was at the high end of its projected range at 2.51 million ounces and total 2012 gold production forecast is 2.6 million ounces at total cash costs of $250-$275 per ounce, using sales of other metals like silver to offset producing an ounce of gold. Goldcorp also has $1.7 billion in cash and a dividend yield of 1.2%.



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