Gold rebounds after two-day dip

By Alix Steel

 

Gold (-GC) prices were rising Tuesday, shaking off a two day decline that left the metal down 2%.

 

Gold for April delivery was rallying $18.80 at $1,743.70 an ounce at the Comex division of the New York Mercantile Exchange. Gold has traded as high as $1,744 and as low as $1,712.60 an ounce while the spot price was adding $12, according to Kitco's gold index.

 

Silver (-SI) prices were 18 cents higher at $33.93 an ounce, while the U.S. dollar index was slumping 0.7% at $78.56.

 

Gold prices were finally making their way higher Tuesday, helped by a stronger euro and weaker dollar. Gold had been digesting the Federal Reserve's announcement last week that it would keep interest rates low until the end of 2014. 

"I think the breakout we saw a couple of weeks ago is still holding up," says Stan Dash, vice president of applied technical analysis at TradeStation, who is monitoring $1,709 an ounce as a key support level. A close under that price would signify a more dramatic selloff. "Then I think you have to be more serious about a retest of $1,675 an ounce," says Dash.

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Gold investors seemed indifferent to news that China only imported 38 tons of gold from Hong Kong in December, down 62% from November. This means that China wasn't enticed by lower prices ahead of its New Year festival. On the flip side, China still wound up importing 427 tons of gold in 2011 and consuming 787 tons, which includes the 360 tons the country produced on its own.

 

"Chinese gold imports from Hong Kong tripled from 2010," says Mark O'Byrne, executive director at GoldCore, a bullion dealer. "There continues to be suspicions of Chinese official sector gold bullion buying." 

Frank Holmes, U.S. Global Investors CEO and chief investment officer, also says not to make too big a deal over the headline number. "October and November import figures were much higher than usual and the December figures reflect a reversion to the mean," says Holmes. "On the year, gold imports from Hong Kong were up over 250 percent from 2010, that doesn't sound like a slowdown in demand."

With the International Monetary Fund warning of slower Chinese growth this year, Chinese gold demand remains a dicey factor in higher gold prices. If China's trade surplus narrows, the government could possibly crack down on gold imports as a way to curb the inequity. "Barring any changes to China's monetary policy, renewed eurozone weakness may impact China's growth, which may curb demand for gold jewelry," says James Steel, analyst at HSBC, in a recent note. Yet any signs of significant growth slowing could trigger monetary easing, which is good for gold as people look for a safe place to store wealth.

 

Unfortunately for gold, its short-term fate will likely be tied to the euro. Greece was able to raise 812.5 million euros over six months at slightly lower yields but to slightly lower demand. The euro was also positive on rumors that the Greek government had agreed on enacting austerity measures needed to secure a second bailout. The modest optimism, despite a 24-hour strike in the country protesting 15,000 jobs cuts, was buoying the euro and gold prices.

 

Gold could also be impacted Tuesday by Fed Chairman Ben Bernanke testifying to the Senate Banking Committee. Any signs that the Fed might revise their economic forecasts upward could mean a rate hike earlier than the end of 2014.

 

"If the Fed would start raising rates that would be a very negative sign for gold," says Adrian Day, president of Day Asset Management, noting that the Fed needs to see months of solid job growth before taking action. "What matters is if rates are positive or negative, and it matters the direction."

 

Gold mining stocks were rising at midday Tuesday. Barrick Gold (ABX) was up 1% at $49.67 while Newmont Mining (NEM) was 0.59% higher at $61.25.