Gold, silver recover from carnage
Prices rally on a weaker US dollar after a tough week in which gold fell 4% and silver tanked 27%.
By Alix Steel, TheStreet
Updated at 4:27 p.m. ET
Gold (-GC) for June delivery added $11.60 to settle at $1,503.20 at the Comex division of the New York Mercantile Exchange after falling more than 4% last week. Gold Monday traded as high as $1,512 and as low as $1,489. The spot gold price was rising $16.90, according to Kitco's gold index.
Silver (-SI) prices gained $1.83 to close at $37.12 an ounce after plummeting 27% last week.
Stocks rallied as well, with the Dow Jones Industrial Average ($INDU) closing 46 points higher at 12,685. The S&P 500 ($INX) rose 6 points to 1,346, and the Nasdaq ($COMPX) added 16 points to finish at 2,846.
The consensus seems to be that silver has more downside now than gold. Barclays Capital thinks that silver will find support in the low $30s but that "longer-term investor interest in gold remains robust." Barclays cites Asian demand as a key factor for higher gold prices.
Goldman Sachs seems to be in agreement, issuing a 12-month price target of $28.20 for silver, predicting it could slip as low as $24.70 in the next three months. Goldman's one-year target for gold is $1,690 an ounce after the metal fell to a three-month low of $1,480.
"There is overhead resistance in silver," said David Morgan, the founder of Silver-Investor.com. "I'm not that eager to get back into the market," he said.
But, Morgan added, "the fundamental fact remains that you cannot print wealth and as long as (Federal Reserve Chairman Ben) Bernanke and other central bankers in the world try to print wealth you're going to have more and more upside for the metals."
Gold and silver were breathing a sigh of relief Monday as the U.S. dollar index fell. The currency rallied more than 3% last week as the euro tanked on rumors that Greece might leave the European Union and on speculation that the European Central Bank won't raise rates at its July meeting, which had been widely expected. The lack of consistent and aggressive rate hikes will leave negative real interest rates in the EU for longer than anticipated, now at a negative 1.55%.
Further helping gold and silver Monday was Standard & Poor's downgrade of long- and short-term Greek debt to B and C, respectively. Although a "default" might off the table, more creative defaults -- like extending current bond maturity, allowing Greece to take longer to pay back its debt -- are being considered. All of this increases the appeal of gold and silver as haven assets.
However, it doesn't mean the recent correction in gold and silver is finished. James Moore, research analyst at FastMarkets, thinks that volatility could remain high with participants protecting themselves against more selling.
"While the corrections are likely to entice fresh demand from physical and investment sources, buyers may hold off until some price stability emerges with the metals still vulnerable to downside pressure," Moore said.
Gold mining stocks were trading higher Monday afternoon. Barrick Gold (ABX) closed up 1.8% to $47.67 and Newmont Mining (NEM) gained 1.8% to $54.68. Goldcorp (GG) rose 2.7% to $50.23 and AngloGold Ashanti (AU) added 1.7% to finish at $46.41.
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This morning, the market was provided a basis to rebound with the July employment report, which was just right for the policy doves (209K versus Briefing.com consensus 220K). It showed payroll growth that was weaker than expected, ... More
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