Gold struggles to attract investors

By Alix Steel

 

Updated at 1:08 p.m. ET

Gold prices were choppy Tuesday as investors moved into the safety of the dollar and left gold on the sidelines.

 

Gold (-GC) for April delivery was down $4 at $1,720.90 an ounce at the Comex division of the New York Mercantile Exchange. Gold has traded as high as $1,729.90 and as low as $1,713.80 an ounce while the spot price was shedding $7.60, according to Kitco's gold index.

Silver (-SI) was 27 cents lower at $33.46 an ounce while the U.S. dollar index was gaining 0.3% at $79.39.

 

Gold prices were drifting lower after Moody's downgraded six eurozone countries and placed France and the U.K. on credit watch negative. Gold faced some selling pressure as the U.S. dollar benefited as the "safe" currency of choice, but the sell-off was muted as investors were stepping in to buy the metal on any dips, and as Germany's economic sentiment index came in much higher than expected. Investors further dumped stocks for the dollar after January retail sales in the U.S. came in weaker than expected.

 

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"A fall in price is unlikely," said Commerzbank, "since it would appear that there is brisk interest in buying gold at around the $1,700-a-troy-ounce level."

 

Gold prices in yen were also up Tuesday after the Bank of Japan increased its asset purchase program, or QE, by 10 trillion yen. Many experts were surprised by the move and had expected the central bank to wait for further easing signals from the U.S. Federal Reserve, which would have devalued the dollar and boosted the yen. The yen has been a haven for investors seeking returns as interest rates are high in Japan. The strong currency has been a drag on the country's growth and has hampered its ability to fight deflation.

 

Gold tends to find support when central banks try to pump more money into the system, as the metal moves higher on inflation expectations and perceived weakness in paper currencies.

 

Another possible catalyst for gold this week might be a slew of positive economic data out of the U.S., although today's retail sales number put a damper on those expectations. Better news might trigger a flight out of the U.S. dollar and into "riskier assets," while disappointing news would have the opposite effect. Gold will be at the mercy of those price fluctuations.

 

James Steel, analyst at HSBC, also said President Obama's unveiling of his fiscal budget could provide support for gold. Under Obama's plan the budget deficit is expected to grow more than $1 trillion for the fourth consecutive year. "The debt-to-GDP ratio is projected to continue to rise, at least in the short term," said Steel. "Gold tends to appreciate rapidly once U.S. debt-to-GDP levels move sharply higher."

 

Gold mining stocks were struggling Tuesday. Barrick Gold (ABX) was down 1.6% at $47.28 while Newmont Mining (NEM) was shedding 2.2% at $58.11.