Gold wavers as Irish bailout boosts dollar
The greenback pressures the yellow metal as the EU announces a $113 billion aid plan for Ireland.
By Alix Steel, TheStreet
Updated at 3:17 p.m. ET
Gold for February delivery gained $3.20 to settle at $1367.50 an ounce at the Comex division of the New York Mercantile Exchange. Gold Monday traded as high as $1,370 and as low as $1,354.50.
The U.S. dollar index was adding 0.6% at $80.83, while the euro was falling 1.3% to $1.31 vs. the dollar. The spot gold price was up $4.30, according to Kitco's gold index.
Gold prices stayed in a modest trading range for most of Monday as a stronger dollar tempered gains.
"Tomorrow will be still volatile," said George Gero, vice president at RBC Capital Markets, "due to all the Euro headlines ... Korea and strong dollar."
Despite the European Union's attempts to curb the sell-off in the euro, investors were still dumping the currency on worries that a $113 billion aid package for Ireland might not be able to prevent contagion to Portugal, Spain and Italy. The EU announced new bailout conditions starting in 2013 with revised terms, which could leave bondholders on the hook if a country needs money, to pave the way for bigger financial aid needs.
The euro has sunk 4.4% vs. the dollar in the past week as investors have rotated into the perceived safety of the U.S. dollar. A stronger dollar has put modest pressure on gold prices, as the dollar-backed commodity becomes more expensive to buy in other currencies. A stronger currency also means it takes fewer dollars to buy an ounce of gold, pushing the value of the metal down.
"We think there is the risk of further corrections over the next few weeks," says James Moore, an analyst at thebulliondesk.com. "Gold, while vulnerable, should remain cushioned by safe-haven demand as geopolitical, debt default and inflation concerns continue to prompt investor diversification."
In the short term, gold must contend with book-squaring headed into the end of the year. Some portfolio managers will want to sell gold to show gains, taking advantage of the metal's 27% rally this year. On the flip side, money managers could also pile into gold to show clients that they own the metal.
The tug of war on gold will most likely lead to increased volatility, especially as traders are forced to either roll over their gold contracts or let them expire before Dec. 1. The gold exchange-traded fund SPDR Gold Shares (GLD) currently has 1,285 tons of the metal, which has remained unchanged in the past week.
Traders are also trying to figure out if gold prices will complete a head-and-shoulders pattern, which could mean lower prices. Scott Redler, the chief strategic officer at T3Live.com, says that "$1,356 resistance held, which is starting to create the right shoulder." Redler says the neckline is $1,310-$1,320 and if gold prices breach that level they could sink to $1,265 before finding support.
Gold prices, however, should get some help from buyers who remain concerned over mounting tensions between North and South Korea, China and the U.S. Over the weekend, China called for an emergency meeting in December to discuss escalating tensions in the region as South Korea and the U.S. conduct military exercises in the Yellow Sea. Invited participants are the two Koreas, the U.S., China, Japan and Russia.
When North Korea torpedoed a South Korean ship on March 26, gold prices popped 1.3% as gold took on its role as a safety net against geopolitical issues. Any immediate upside, however, was tempered by dollar strength.
Silver prices settled up 42 cents at $27.19 per ounce, while copper closed flat at $3.75 per pound.
Barrick Gold (ABX) was falling 0.2% to $50.34 and Newmont Mining (NEM) was trading 1.3% lower at $57.76. Kinross Gold (KGC) was down 2.3% to 17.43, while AngloGold Ashanti (AU) was gaining 0.3% to $46.69.
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