Gold pops despite firm dollar
Prices close higher, bolstered by strong physical buying of the metal.
Gold (-GC) prices shrugged off a stronger U.S. dollar Thursday and broke through key technical levels.
Gold for April delivery settled up $9.80 at $1,759.30 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,763.80 and as low as $1,743.30 an ounce while the spot price was adding $16, according to Kitco's gold index.
Silver (-SI) gained 36 cents to finish at $34.17 an ounce while the U.S. dollar index was slightly higher at $78.87.
Gold prices were in a holding pattern as investors waited for signs from Greece that it had reached a deal with private bondholders over interest rates on new debt. In the meantime, strong physical buying was offsetting any damage inflicted by a stronger U.S. dollar.
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Spain raised 4.5 billion euros and France raised almost 8 billion euros, with lower yields at mixed demand. The dollar climbed on the news and was also supported by encouraging weekly jobless claims. Those filing for unemployment claims fell to 367,000 for the week ending Jan. 28, which was slightly better than expected.
The market is now gearing up for Friday, when the Labor Department releases January's employment data. Analysts are looking for the jobless rate to fall slightly to 8.4%, according to Briefing.com, while the private sector is expected to add 250,000 jobs.
A good number could mean a rush into riskier assets like stocks as investors leave the safety of the dollar. That will help gold, although the metal could lose a little shine as a haven asset. What would hurt gold are any signs that the job market is improving faster than previously expected, which could stir up rumors that the Federal Reserve would raise interest rates sooner than its target date of late 2014.
If the number disappoints, the dollar could rise, which would weigh on gold prices; however, it would also back up the Fed's case that the economy is still weak and a less restrictive monetary policy is needed. The longer rates stay at zero, the more profitable it is to own gold.
"The opportunity cost for holding gold is zero . . . when the rate on short-term money is zero," says Leo Larkin, metals and mining analyst at S&P Capital IQ. “(Gold) is a hedge against what (investors) think will be the continued depreciation of currency."
Federal Reserve Chairman Ben Bernanke seemed to reiterate the Fed's commitment to an easy money policy during his testimony today at the House Budget Committee. He said, "Globally, economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in Europe," meaning that the Fed is focused on potential liquidity issues in the U.S.
The Bank of Japan could also be in the spotlight soon with the yen nearing record levels against the dollar which might force an intervention in the currency market. Attempts at currency devaluation could also highlight gold's roll as a safe hard asset.
Mihir Dange, president at Arbitrage, says this is a pivotal time for gold. "Volume is a little lighter," he says, "it either means that the resistance will be support when we get through or gold will pull back from here." Dange has been waiting for a $100 move, but has yet to get a read on which direction the price will go. "It is important to keep a close eye on the situation."
California has added half a billion dollars in state employee payroll last year....no matter that the state is broke. Thank God the Sacramento bunch has no money printing press....it might have been worse. The problems are not being solved in DC or here in the formerly golden state. Therefore I see no reason to sell gold or silver. Maybe I should buy more.
My take on it is relatively simple.
The media would have you believe that the euro zone crisis is hurting our stock market. The truth, I suspect, is quite the opposite as investors have fled European stocks and moved their money to American stocks. The talking heads mention that investors have moved their money into Treasuries to explain why their yield has dropped, but suspiciously do not apply the same insight into equities. I believe that is to deceive the people into believing that Europe is the source of our troubled stock market, when, in fact, it is keeping the market here from falling.
As to gold, I believe these issues are intertwined. Although there is short-term risk, the potential rewards of owning gold seem to outweigh the potential risks.
If the economy tanks, gold prices tank, but prices deflate so the buying power of gold remains relatively stable;
If govt deflates the currency with additional "quantitative easing", then the dollar goes down and gold goes up;
If inflation hits, with our national debt, even the USA will default. Gold becomes the reserve currency of the world and goes to $ 6k/oz minimum.
The problem is that it is no longer as liquid as when we had the gold standard. That is also a danger to society if the dollar fails.
The unknown factor is if the euro zone breaks up, will the central banks start selling their gold reserves to fund operations? That would drive gold prices down, and those govts would suffer long-term for short-term relief.
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